Wanna Bet on the USDA Report?

Published on: 23:13PM Jun 26, 2009
You clicked here thinking you’d get another opinion on what the June 30 USDA Crop Report will say, or reaction to it. I’m here to tell you to relax.
All too often, well-meaning market advisors and producers get too wrapped up in these types of things. We like being “right” about the market, knowing where prices are going and feeling smart about our fundamental or technical analysis. This is all great if it works. Unfortunately, being right doesn’t matter much. All that really matters is what prices do.
I remember one time being totally bearish on the corn market. Based on the fundamental supply/demand analysis, I felt it would fall another 30 to 40 cents. It was autumn, we had a big crop coming and there was no reason for markets to rally. All the fundamentals were bearish. I joined in, believing I knew where the market would go because all the fundamentals were in place.
Lo and behold, weather forecasters started predicting a drought for the following summer. It didn’t matter that summer was still eight to ten months off. Corn prices rallied nearly 50 cents, and soybean prices rallied almost a dollar. To be sure, the rally did not last, and prices eventually receded to where I had expected them to go. In the meantime, I got my butt kicked.
Was I correct on my market prediction? Ultimately, yes. Did I lose money? Yes. Why? Because all that matters is what prices actually do—not what they are expected to do, or should do. Prices rose. It didn’t matter why. It didn’t matter that it made no sense at the time, and it didn’t matter that prices ultimately declined again. What mattered was that prices rose enough in the short run to reclaim my equity in my hedges, knock me out of my hedges and put me in a weak position. I had been blindsided, both in my equity position and in my mind.
My point is that being right on the market does not make you money. Taking advantage of price moves will win or lose the game. Remember that the only standard by which you should measure your success in commodity marketing is your final average price per bushel on all your crops. All you should care about is increasing the revenue per acre. (If you use a market advisor, hold him or her to this standard as well!)
We are talking financial success here—the kind you can smile about, your banker can smile about, and your spouse can definitely smile about. The kind of success that ultimately lets you sleep better at night. You can confidently plant your next crop knowing you have the strategies in place for marketing success.
So, listen to the USDA Report numbers if you care to. But realize that usually, within a couple of days, the market goes back and resumes the original trend that was in place, and all the hoopla and news surrounding it turns out to be nothing but a distraction. If it does change the trend of the market, your strategies should be in place to respond to the trend change and/or the change in supplies. Those are fundamental changes. The fact that those changes came as a result of the report shouldn’t be a big factor.
Spend your time thinking through your marketing strategies. Know what you are going to do if the market goes up a little, up a lot, down a little or down a lot. Be disciplined enough to stick to your strategies. And enjoy being a successful producer and marketer.
One more thought-- If you really can’t resist the urge to try to outguess the USDA Report, I suggest you bet your buddy on it. Don’t bet your crop and your livelihood on it.
Scott Stewart is president and CEO of Stewart-Peterson, a commodity marketing education and advisory firm based in West Bend, Wis. You may reach Scott at 800-334-9779 or email him at [email protected]