Know Your Market
Know Your Market
Dairy trading experts offer strategies and practical perspectives to optimize market performance.
How Much Do You Need USDA Data?
Oct 25, 2013
While USDA information is useful, it is you, the dairy producer, who still needs to make decisions in front of uncertainty and during fast market moves.
By Patrick Patton, Stewart-Peterson
Washington seems to have settled enough of its differences (at least temporarily), and for USDA and other government officials, it’s back to work. Your work didn’t stop nor did the markets stop moving. Therefore, we have to be confident making marketing decisions without the information we’re used to getting. With the political climate we’re in, it’s likely we’ll see government pull the plug again in the future. So let’s take a moment to consider how much that data really matters to dairy producers’ decision-making.
Now that USDA is back to work, there is one thing we can be sure of: Information will be plentiful. If you’re a news junky or believe that the markets move on each individual fundamental piece of data, you are probably very happy that you are once again due to receive most USDA data. We should be getting reports anywhere from the last week in October through the first week in November.
While it was a disappointment that the USDA closed most of its reporting, the market still moved onward. It is a wide variety of information -- whether it comes from the USDA, the latest weather forecast, or news of events elsewhere around the world – that impacts price movement. More often than not, the USDA reports simply serve as catalysts for movement; USDA adjusts its numbers and the market moves in a big hurry one direction or another.
Perhaps the lesson learned the last few weeks is, while the USDA information is useful, it is you, the dairy producer, who still needs to make decisions in front of uncertainty and during fast market moves. It is impossible to collect all of the world’s information and correctly predict which information will drive the market. Those producers who prepare and pre-plan, as well as those who execute regardless of price movement, will likely be more satisfied and in a position to control their own destiny.
One only has to look back the last half decade at all the major events that occurred and sent prices in very strong directional moves. None of these events were forecasted: the massive run-up in prices due to flooding, a runaway stock market in 2008, only to be followed by a huge economic collapse, a massive tsunami, a major drought and even a government shutdown. Though none were forecasted, they had to be dealt with. There’s no doubt that, in the future, there will be many more surprise events. Being prepared will be paramount for success.
I liken all this to dressing for the weather before you go out to work. If you wear multiple layers, you’re covered if the temperature goes up or down, or whether the terrain is smooth for walking or rocky and causes you to sweat. It doesn’t matter how many weather experts you consulted before you went out or which weather apps you have on your mobile device. All that matters is that you’re prepared for what actually happens.
For the dairy producer, that translates to a shift in activity around USDA report time. We typically spend more time preparing for the USDA reports prior to their release than we do reacting to the information they provide. We do this by looking at which reports historically have created the most volatility in the market, and what factors we are seeing from a technical standpoint leading up to the report. This technical analysis gives us a sense of some price targets the market could move toward.
The beauty of doing this in advance is that we can have conversations with producer clients in advance, discussing potential strategies, so that when the market actually does move, we can act quickly. We can act quickly because there is not such an emotional barrier to get through while the market is moving.
Whether you work with an advisor or not, preparation prior to a market-changing event is worth your time and energy. It sure beats back-tracking to find that extra layer of protection.
USDA is back to work and more information may be more readily available. It’s still up to you to plan and execute the strategies to shift risk and take advantage of opportunities.
Thanks to our Senior Market Advisor Bryan Doherty for contributing to this column.
Patrick Patton is Director of Client Services for Stewart-Peterson Inc., a commodity marketing consulting firm based in West Bend, Wis. You may reach Patrick at 800-334-9779, or email him at firstname.lastname@example.org.
The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. This material has been prepared by a sales or trading employee or agent of Stewart-Peterson and is, or is in the nature of, promoting the use of marketing tools, including futures and options. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Stewart-Peterson. 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. Copyright 2013 Stewart-Peterson Inc. All rights reserved.