How to break the bond between the market and your emotions.
May 26, 2011
Imagine if researchers could attach a wire from you to the commodity markets. The idea would be to measure your emotions as they relate to market news and price change. If the market was up, the wire might transmit feelings of optimism. If the market was down, the wire might signal the opposite.
Or maybe not. Some producers might feel pretty good when the market is down because they did a good job of managing risk and are positioned to grab opportunities others can’t, such as adding more acres.
In either case, one of the best things you can do for your marketing is to break the connection between your emotions and market price. What if you felt little emotion when the market was high or low?
Breaking the market’s hold on your emotions—in effect, its sway over decision-making—will help you position your marketing to strategically capture opportunity and manage risk.
History shows us you have a lot of experience with emotions and market volatility. Since late 2006, we’ve experienced record high prices for corn, beans and wheat followed by a precipitous drop and another rise. Many factors influence grain prices, and many factors can reverse prevailing market sentiment at almost any time, keeping your feelings on edge.
Nothing on the horizon suggests the pattern of volatility we’ve seen to date will relax. Geopolitical uncertainty is a constant. We’ve just endured a global financial crisis. Inflation fears persist. Energy prices are rising.
A good first step to breaking free of the market’s emotional hold is to reflect on how you felt in prior years during significant market moves. By exploring how you felt in the past, you can begin to manage your emotions—and, consequently, your actions—in the future.
In hindsight, you know that when the market was highly rewarding and could do no wrong, it was probably time for concern. Conversely, when each day brought bad news, operations were going out of business and everyone expected the worst, we likely were near or at a price bottom. Significant opportunity was at hand.
Another key step: Commit to marketing consistently. Inconsistent marketers set themselves up for frustration. The danger of inconsistency – or, marketing “part-time” – is that emotion will drive you to take action near the trough of market cycles. If you engage only in the troughs, you will be hard-pressed to see marketing’s value.
Having realistic expectations of price will help you stay consistently engaged in marketing, especially when others panic and flee, abandoning risk management at the worst possible time.
If you are to become a consistent marketer through the best and worst times, you have to be prepared to miss the tops of markets, an unsettling notion for any operation during a bull market. At the same time, you can have confidence that your marketing strategies will keep you well off market bottoms. Most important: Keep your eye on the long-term prize, a strong weighted average price for all your production.
We tell our clients that marketing is a marathon, not a sprint. There are no shortcuts that yield long-term success. Most people have to stay engaged in marketing through a complete cycle of market ups and downs before acquiring the discipline to view marketing as a long-term endeavor.
In summary, be consistent. Prepare to do what your mind says not to do. And, be ready to act counter to your emotions and go against all that seems to make sense on the surface.
Scott Stewart is president and CEO of Stewart-Peterson, a commodity marketing consulting firm based in West Bend, Wis. You may reach Scott at 800-334-9779, email him at firstname.lastname@example.org.
The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Neither the information presented, nor any opinions expressed constitute a solicitation of the purchase or sale of any commodity. Those individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures trading involves risk of loss and should be carefully considered before investing. Past performance may not be indicative of future results. Any reproduction, republication or other use of the information and thoughts expressed herein, without the express written permission of Stewart-Peterson Inc., is strictly prohibited. Copyright 2011 Stewart-Peterson Inc. All rights reserved.