Job of the Market - newsletter article
Here is rough draft of newsletter article that I wrote today. It will go out in a few weeks.
The Job
of the Market
Knowing what the present “job of the market” is key in determining
the right path in your grain marketing plan.
What do I mean by the “job of the
market”? No I am not talking about
making it so everyone struggles and many lose in trading grain futures; the
market always has and always will find a way to hurt the most possible.
But the “job of the market” I am referring to is what is the price job of
the market. Do we need to create
demand? Or do we need to curb
demand? Do we need to promote additional
supply? Now for some products it is as
simple as ECON 101 where high prices promote more supply and also curb demand;
while low prices take out the incentive for supply and help demand. But in commodities such as grains it is a
little trickier; because of all of the factors that go into making or breaking
both supply and demand; plus the fact that the more we have the easier it is to
use a little more.
Last year’s drought was a good example
where the “job of the market” was to
curb demand. We needed to go high enough
so that we wouldn’t use product too fast and so we wouldn’t run out of
product. How did we do that? Prices went higher causing less usage; but
also causing things like exports to drop and imports to happen.
This year as things sit the “job of the market” is to find
demand. Now as I hint to above the grain
markets seem to be able to find a little demand just via having a little more
supply. But if we want to ask our what
is the “job of the market” and use
some of the USDA production numbers we will find that the “job of the market” for corn and beans is to find demand. Latest forecasts have big year over year
production increases; as I write this wet weather leading to flooding and lost
acres is taking production potential down.
But down enough for the “job of
the market” to be to curb demand like its job was last year? No……….at least not yet.
So how do you find demand?
I really don’t need to answer the question
how do you find demand because we all know the easiest way to find additional
demand is via lower prices. So in
marketing what does that tell a guy? To
me it says be pro-active and maybe use a couple other risk management slogans
like “Reward the rallies” or “You don’t go broke making sales that make $ense”
I don’t mean to be super bearish nor do I want
to promote panic selling. But when I am
deciding what to or not to do when it comes to the pricing and protection of
grain prices. What the “job of the market” is has to be a
consideration and what is the “job of
the market” today with what is known.
Is it to promote demand or curb demand?
Keep in mind that you also want to consider things like money flow,
spreads, technical outlook, weather, economics in the US and the World and the
spillover effect on demand, and I want to make sure not to have backyardagains
and realize that the crop sizes in other countries are becoming very important;
so don’t let your marketing plan get hung up over one of the thousands of
things to look at.
If you need some help with your grain
marketing plan please give us a call.