Tuesday, August 28, 2012

Remember history ....yet remember to stay comfortable

I often talk about the fact that not one marketing plan is correct for everyone producer as everyone has different goals, needs, and circumstances that factor into each persons decision when to market grain.   Some guys need to promote cash flow at certain times of the year; some guys need to keep bankers happy while others are simply trying to avoid the tax man.

So my message today is more of the same.  Get yourself comfortable for you and your situation.  If you haven't made any or many sales and now feel like you will have at least a little protection it might mean making a few sales or spending a little money and buying some protection.  It might mean doing nothing for some as after there really is a long time until we see new crop in 2013....around a year for many areas.....maybe a little more in some.  Long time where plenty of things have to go just right for our balance sheets to fix them self.

What happens if see the drought prolonged another year.....what happens if we don't ration off demand as fast as we should.  The sky really could be the limit if we continue to get a perfect storm of tight supplies, solid demand, and money flow.  The last money flow is really where I get a little concerned for grain marketing.  I remember last year around this time......corn traded to nearly 8.00 by late August only to fall over 2.00 a bushel in the next 30-35 days.

I didn't do a lot of research on the fundamental change over that 30 days; but as I really remember it the crash happened mainly due to money flow.  I think we need to remember that many days the only true fundamental that matter's isn't always the supply and demand of a particular product; but the money flow.  We need to keep feeding the monkey; BIG MO....or give big money fund flow a reason to stay in the game.......maybe up their ante a little bit or at the very least not to start to take huge profits.

I have a couple charts below; one of Dec corn in 2011 and another of this years Dec contract.  You can see that last years rally was impressive but not nearly as impressive as this one has been.  The question really becomes will history repeat it self?  More importantly if it does......will you still be comfortable?

Don't mistake at all that I am very bullish grains......but who isn't when the markets are at the top....isn't the fact that nearly everyone is bullish ......too bullish a little scary by it self?   But I do know that just because I am friendly and feel that the market has an unprecedented drought that  needs more demand being curbed then ever before........that it self doesn't mean we have to go higher......and I remember last year......I also remember the market crash in 2008 along with the huge squeeze on spring wheat that took it nearly twice as high as anyone every thought it could go.

So I am not here to preach that the market will go up or will go down; I am just here to preach doing what is right.  Practicing good risk management that leaves one comfortable whether our markets go up or down.

Here are a couple of charts

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