Bull markets are a lot more difficult and emotional than bear markets.
Bull markets bring out almost anyone's absolute worst emotional traits. People are afraid they're going to miss the top. They're mad because they sold too much grain too early and they keep looking for someone to blame for the latter. Most look for someone with a silver bullet to help them hit the top of the market for the grain they have left.
There's absolutely no easy answer on how to handle a bull market like the one we've been witnessing in both corn and soybeans. You're going to make mistakes — just try to keep from making any really big ones.
Here's a few ideas to help people get through what may be a wildly swinging market this summer.
Think ahead. Many have probably heard the saying, “farmers worry more about the grain they've already sold than the grain they haven't sold.” I can assure you, there is probably no truer statement.
I've been told by many farmers, after a bull market starts, that my main job is to use the futures market to buy back the grain that has already been sold. That's not our job. Our bias has and always will be that, once grain is sold, forget it. Instead, think of the grain you haven't sold. Remember you always have at least two crops to sell and, in many cases, three.
As spring approaches, I concentrate on marketing grain that will be harvested this fall. If you're worried about last year, you'll miss all the good opportunities for next year.
Make small sales and many of them. No one is going to be able to hit the absolute top in this market. If you are capable of selling everything at the absolute top, in most cases it's going to be the result of luck and nothing else. On at least a portion of your crop, make small sales every couple of weeks. By using this method you are assured of having some grain sold in the top one-third of the price range.
Stick to cash contracts if you can't emotionally handle the equity swings in a futures and options account. Your equity swings the same whether it's in the cash market or in futures. Futures remind you every day whether you are right or wrong and some people have a tough time handling that. If you're one of them, then why do it?
Have reasonable goals and objectives. I've said it before — don't try to hit market tops. Whether you use our newsletter, The Brock Report, someone else's newsletter or a government source, have a solid fundamental estimate of what you think corn and soybean prices are going to average. Then have a goal of selling the majority of your production above that average price. This will keep you from making major mistakes. Forget your ego and leave it at the door. Marketing is a business, not a football game.
Do what works for you. Everyone has a different balance sheet and income statement and, therefore, a different break-even point. What works for your neighbor may not work for you. Some people may want to roll the dice and risk everything to try and hit the market top. Some want to spread sales out. Do what is comfortable for you and allows you to sleep at night.
Have an understanding of technical analysis. Unfortunately, few producers use technical analysis. Some simple basic trend-following rules will help you recognize when this market has a confirmed top.
Undoubtedly, if this bull market is like any others, some will (and already have) sold too much grain too early because the price looked good on the way up. Some will ride this bull market all the way up and all the way down and never sell a single bushel. Some will use a scale-up selling program, ending with a reasonable average but most likely not earning bragging rights at the coffee shop.
A fortunate few will get lucky and sell the majority of their grain near the top, or at least will tell you so at the coffee shop. This group will be small but very vocal.
What I do know is that all bull markets turn into bear markets. That's almost guaranteed. Some people claim we're “entering a new era.” Cattle feeders said that in early December and many grain farmers said that in 1996.
Forget it. This is a bull market that is caused, in large part, by disastrous soybean production last year, and average corn production coupled with a sharp increase in worldwide demand for corn. We will produce more soybeans again and corn production, due to price incentives, will catch up with usage. In other words, the bull will turn into a bear.
After years in this business, I would like to think the next bull market will be easier to handle. But it never is. Bull markets push everyone's emotions to the limit, which forces us to make decisions we wouldn't have made under normal circumstances.
Richard A. Brock is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report. For a trial subscription and information on Brock services, call 800-558-3431 or visit www.brockreport.com.