Separate the Chatter from the Valuable Grain
May 04, 2009
I recently read Jim Collins’ popular business book, Good to Great. In it he says, “The good-to-great leaders were able to strip away so much noise and clutter and just focus on the few things that would have the greatest impact.”
Allow me to help you remove a few common distractions from your busy work day. After all, you’re trying to plant and nurture a crop. You want to avoid distractions.
In the age of satellite and cable TV, internet access and cell phones, it is very easy to be too well informed on what the markets are doing. Far too often people believe that a little more knowledge will make them better marketers. I believe, as I wrote in my previous Blog column, gathering too much information is misdirected effort.
There is usually one major fundamental factor driving almost every market. It might be a large crop, or it could be unusually big demand. It could be a drought or a disease. Whatever it is, typically this one dominant factor pushes prices up or down. This holds true for corn, hogs or gold. Identifying that one fundamental factor will give you the right perspective to take your marketing from “good to great.”
But if you are not careful, you can get lost in a flood of information. You listen to the radio, visit Internet sites, talk to everyone you know in the business and get all excited about the latest export number, slaughter number, news from China or Argentina, or whatever news is being played up for the day. Almost all this talk is insignificant noise. Most of it is a distraction, getting in the way of you seeing the big picture.
It is no different than the stalks and husks you have to run through the combine and spit out the back in an effort to harvest that very valuable grain. When it comes to market analysis, the valuable grain is the one major fundamental driving the trend. All the other information is just husks and stalks, meant to be trampled down and ignored.
Let me give you an example to drive the concept home.
For as long as you have been farming, can you remember a time from January all the way to May when you did not hear constant chatter about acreage estimates for corn and soybeans? Will acreage be up? Will it be down? Will there be a shift from corn to beans? For the amount of time and pages of print they devote to the talk of acreage, you would think acreage is one of the most critical factors in determining the price of a crop.
But look back over the corn and soybean charts for the last 30 years. Compare where acreages climbed and where acreages dropped and see if there is a correlation between high prices and low prices. You will find that there is no correlation. Unless the U.S. government stepped in with some acreage set-aside program that artificially took massive amounts of acreage out of production, acreage just hasn’t been a factor. High prices are associated with bad weather, low yields and, in some instances, demand. Low prices, on the other hand, are consistently tied to big crops.
Everybody gets all excited about a million-acre swing in corn plantings. What does a million acres translate into? At 150-bushel corn, it’s 150-million bushels. First, if you look at the statistical variance the USDA places on its own estimates, a 150-million swing is well within the error tolerance they leave for their own predictions. Second, 150 million bushels can easily be added onto the crop by just one good rainfall moving across the central Corn Belt.
The bottom line is, when we are talking about crop size, it will take about 500 million bushels difference in the corn crop to have a significant impact on the outlook for prices. Typically, acreage variances do not do that; weather does.
I am not writing this simply because I am a contrarian; I am writing this to help busy producers who might be frustrated by information overload to focus on what really impacts your marketing outcomes. When the ground is ready to plant, you don’t spend time and effort waxing the tractor. You get out there and focus on what matters. Do the same with marketing. Don’t get distracted.
What should you be focusing on at this time of year from a marketing standpoint? Your marketing strategy. What selling decisions, at what price, will trigger you to take action? What tools will you use to protect yourself against a price drop, or allow you to take advantage of an upward price move? What are you going to do if the market goes up a little, up a lot, or down a little, or down a lot? More on great strategy in the next column. Happy planting!