Filter Analyst Information Before Making Sales

January 12, 2018 05:29 AM
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Now that the New Year has arrived, analysts are bound to begin offering their opinions on what will happen to commodity prices in 2018. With so many opinions to choose from, which analyst should you heed? None of them, says Mike North of Platteville, Wis.-based Commodity Risk Management Group.

“Nobody has a crystal ball,” North says. “While we can talk to producers plainly about what all of the information says, what they should always be doing before they listen to anybody else is looking at the market and making a decision about how that price relates to their situation.”

Commodity analysts, like weather forecasters, can keep their job after making an inaccurate prediction. But if producers bet the farm on an erroneous outlook, they could suffer financially. That makes prudent commodity marketing essential.

“In the midst of all the noise, there needs to be this internal presence where producers have to market subjectively for their own situation,” North explains. Evaluate possible outcomes. “Say, ‘OK, if these guys are right, what does it mean to me? If they’re wrong, what does it mean to me?’” he advises.

Stay Skeptical. Not all opinions should be treated equally, says Ray Grabanski, president of Fargo, N.D.-based Progressive Ag. Weigh the track record of analysts to know if their opinion should be regarded.

“You can tell a tree by its fruit,” Grabanski points out. “I reserve the right to change my outlook as I gather more information. Any good analyst has to be willing to change his opinion.”

Farmers should also follow prices independently of analysts using the futures market, North adds.

“Everyone has access to the same numbers, and they can all see what the real buyers and sellers and the market is telling them they think the price is going to be,” he says.

Keep Studying. Learn more about cause and effect in the marketplace, as well, Grabanski says. “Print out market comments from analysts before a WASDE report, and then print them out after,” he recommends.

“Then you can look at ‘OK, what happened, and how did the commentary change? What was the market reaction, and how did [that commodity] trade for the couple of weeks afterward?’”

Look to advisers who can boil down all kinds of market information and make it easier to understand and act on, North concludes.

“Everybody’s filtering the information,” he says. “You never know where the best information lies. You really have to look at all of it.” 

Is This The Bottom For Commodity Prices?

Many producers want to know whether grain prices have finally bottomed out. Some analysts think the bottom is in on corn and wheat. To evaluate whether a true price bottom has occurred, look for a few signs, recommends Ray Grabanski, president of Progressive Ag.

“Market bottoms occur when stocks are big and there’s been almost no market movement in a few months,” Grabanski explains.

Another telltale sign of a market bottom is an abundance of negative news. “All the news is bullish when we’re at the top, and all the news is bearish when we’re at the bottom,” he says. “This winter, all the news will be negative corn and wheat.”

Although seasonal patterns in the market suggest prices will start to move higher, an overall lack of farmer selling could keep prices trading within a relatively narrow range because farmers have bins shut tight, says DuWayne Bosse of Bolt Marketing.

Grabanski won’t be surprised if it takes a while for prices to rally. “Market tops usually last minutes,” he says. “Market bottoms last months.”

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