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Market Thoughts
This calendar year will be done before we know it and the market will become obsessed with 2022. Yet, the 2021 crop still needs to be marketed in a way that will maximize profits. In my opinion, the next 8 months will be one of the hardest marketing seasons farmers have ever seen. These markets are wild and unpredictable beasts. A giant machine. One that will chew you up and spit you out. It gives exactly zero cares about you. These markets have the ability and capacity to double or triple. Then in a split second these unruly beasts of burden will overthrow their masters leaving only pure carnage and destruction. This is the reality of marketing grain in 2021. Unpredictable is an understatement. | As we begin to wrap up this year decisions need to made. Every farmer will need to sell their grain at some point. The question is: when and at what price? In reality, all unpriced grain is speculation grain. Which means you are ok with selling at 2019 prices. The tradeoff is that this BULL market should continue. |
Why This Matters
The role of speculation is important because it allows for the potential of huge profits.
On either side of the market the financial implications are huge. It means that risk management becomes supreme. It means managing speculation for a big win is much more than just a hope and a prayer. Hopeium is not a strategy. Let’s assume that most farmers now have sold enough grain to cover their cost of production, step one. In some cases that’s impossible - AKA drought. Step two is managing the role of speculation for the big win. | The role of speculation is important because it allows for the potential of huge profits with limited downside risk because cost of production has been taken care of. This method basically creates a stop loss trade. If the market tanks, the costs are taken care of – farm again next year. This is how you trade effectively and market your grain like a professional not an amateur |
Parts of Speculation | |
Technical Analytics o The chart | Fundamentals Analytics o The Data Guts o The Stomach |
Bulls and Bears
Here’s the real scenario with all of these commodities. Like I talked about last issue we are in an inflationary bull market. These are hard to trade because these markets are rare. In an inflationary market you just buy and hold – those are simple. But this market is different – there’s a lot going on right now. As in the last issue it would be safe to say that everything grown on the Canadian prairies has upside potential. Reality says the Canada is going to run out of grain much earlier than in other years. This could be our Achilles heel. At some point, demand rationing will happen, and international buyers will simply leave, which could mean record high prices with no buyers. This is crazy to think about, but theoretically it can happen. | The best advice for this year is to watch for warning signs. Watch for “cancellations”, super high prices, with no delivery. “We are full”. The elephant in the room is soybeans and corn. Both these crops are huge – production was not an issue. In fact, the spot prices since January 1,2021 for soybeans is down 11%, corn is up 15%. Small potatoes when compared to Spring wheat which is up 68%. |
Quick Chart
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