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The Gifts the Markets Are Giving You

Published on: 23:08PM Dec 17, 2009
When someone hands you a gift during the holidays, will you wait to take it because a bigger one might come along? No, the right thing to do is reach out and take it, perhaps adding, “thank you.”
 
However, if there is a gift receipt attached to the gift, you might save it, in case you need to take it back.
 
Think about that concept as it applies to your marketing right now. As I write this we are sitting with corn at $4.10. We’ve produced a good crop. Yes, there is still some out in the fields. But by and large it was a good crop, even with less than desirable weather this year. So why are prices high right now? It’s a gift from the markets.
 
There is talk that the corn left in the fields may result in lower bushels in ending stocks, and therefore supply on what was once a potentially record crop might not be as large as initially perceived. Remember that markets work on perception and anticipation. Sometimes there is no hard data available—only perceptions and anticipation and talk. So when the market hands you good value, it’s a gift. It’s your opportunity to gain.
 
If prices are at historically good value, you don’t want to wait around too long for prices to go higher. The chances of them going higher is low, given the world deflationary environment right now.
 
That said, prices could move higher. We are in volatile times. If it quits snowing after the New Year, we could see a dry spring, and everyone will start talking drought. This could be more than enough to get people nervous and keep prices trending higher. So, as a contingency, you may want to protect against the possibility of rising prices by keeping a receipt—call options. That way you can reown that crop if prices go higher.  (Note: I would wait to buy these only if fall prices highs are taken out.)
 
In the big picture, frustrating as it may seem, volatility is a gift the markets give you. Volatility means opportunity if you manage it correctly. Over time, commodity prices tend to average out at the average producer’s breakeven point. Good marketers can capture above average prices, and that’s a gift that the markets can give to those who are willing to reach out and take it.
 
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 scotts@stewart-peterson.com.