Tuesday, May 28, 2013
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.