Chip Flory: Fight the Fatigue

April 18, 2019 04:15 PM
 
Market fatigue is dangerous. It’s a drain on attitudes, which can make you complacent—which can lead to mistakes. And with cash as tight as it is, marketing mistakes are magnified.

Tight cash flow, fleeting pricing opportunities, weather, floods, USMCA, trade with China, Japan and the European Union, and production in South America. Unfortunately, that’s just the start of the list of items impacting grain prices—and what you’ve grown tired of talking about.

Market fatigue is dangerous. It’s a drain on attitudes, which can make you complacent—which can lead to mistakes. And with cash as tight as it is, marketing mistakes are magnified.

But it’s spring! You have other, more important things to think about. You’ve got ground to prep, seed to plant and crops to tend. Nevertheless, do yourself a favor and add this to your list of things to do to help fight market fatigue:

  • Stay informed. Don’t lose track of price action.
  • Separate cash from futures. Check at least one of your cash-delivery hubs for basis changes daily.
  • Ask yourself if “today” is a day to make a sale. Even if you decide “no,” you made a choice. Record your decision, with reasons, so you can refer back down the road when you ask yourself, “Why didn’t I sell more when …”
  • Have one conversation a week. Check the market in another part of the U.S. by calling a friend or striking up a conversation on social media.

You’ll be plenty busy in the coming weeks, so have a plan that will function even during the hustle and bustle.

  • Check logistics. How much of expected production can’t be stored on-farm? Your No. 1 priority is bushels that have to be sold in the cash market by harvest. Priority No. 2 is bushels that go in the bin.
  • Estimate breakeven. If you know how many dollars are committed to each acre and you have reasonable yield expectations, you can estimate a break-even price per bushel. In the current environment, that’s not a bad place to kickoff sales. If you’re in the field “on time,” sell up to 20% of priority No. 1 bushels at breakeven but hold off on priority No. 2 sales.
  • Enter orders. Your aggressiveness on priority No. 1 bushels depends on personal conditions. Start at breakeven, and if forward contract (or HTA) opportunities hit 105% of breakeven, for example, make sales. At 110%, it’s OK to have sold all those bushels.
  • In the spring, start sales of priority No. 2 bushel at 105% of breakeven. As returns increase, bump up the percent of the crop you’re willing to sell. If 5% is sold at 105% of breakeven, sell 10% at 107.5%, 20% at 110% and hope you’re sold out before prices top. If necessary, manage opportunity risk with long call options or long futures to participate in price gains after cash sales are made.
  • Check the calendar. If you’re done planting and haven’t sold any priority No. 1 bushels, lower price expectations and make some sales. On priority No. 2 bushels, capture the carry in markets (when available) and spend downtime this spring scheduling post-harvest movement by selling as little as a load or two per day for winter and summer 2020 delivery.

All episodes of “AgriTalk,” as well as other Farm Journal broadcasts, are available on demand via the “AgriTalk” app. Download the app for free on Apple and Android devices. Learn more at www.AgriTalk.com

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Comments

 
Spell Check

Dave
Auburn, IN
4/22/2019 06:36 AM
 

  Wow , now we have priority one beans , and priority two beans, such intelligent, what a dick -less article, why don't you get some real articles on here

 
 
Tim
Ptown, IL
4/24/2019 05:45 AM
 

  Maybe fat boy chip should lose some weight , to fight the fatigue

 
 
Scott
WALCOTT, ND
4/22/2019 07:22 AM
 

  I'm still waiting for Chip's releif rally!

 
 

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