I have a list of Murphy's Law for Commodity Traders, and one of my favorite laws is "When the market is wrong, it doesn't pay to be right."
This law just seems to hit the nail on the head for many farmers. We sit down in the marketing group, we look at the fundamentals, we look at the technicals, we determine which direction prices should move, and then it does the opposite. One plus one does not always equal two when it comes to commodity trading.
It can be so difficult and frustrating to watch the commodity markets do the complete opposite of what they should.
I used to ask farmers to predict prices for a specific date in the futures, like the Nov. 1 soybean price. That was too easy.
Now I ask them to predict how high and low soybean futures will go between now and Nov. 1. That is the true challenge.
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As farmers, there is nothing we can do about commodity prices, other than sell when it is profitable. Prices will go up too far, and down too much, but we can use that to our advantage.
We can collect LDPs on the downside, and sell at profitable prices on the upside. Large price movements mean more profitable opportunities for farmers.
Instead of spending your time trying to determine market direction, spend your time determining your cost of production, and whether or not you're going to meet those costs for the 2006 crop year. With current input prices, profits might not be attainable, and maybe you need to look at ways to minimize losses.
Don't kid yourself into believing that you can correctly predict commodity price direction. Even the best, brightest and smartest forecasters get it wrong, or maybe they are right and the market is wrong.
Either way, it doesn't matter. Stop trying to forecast prices, and learn methods to take advantage of pricing opportunities when they present themselves.
For more information on marketing classes, contact a farm business management instructor at 1-800-959-6282.
Betsy Jensen is a Northland Community and Technical College Farm Business Management instructor at East Grand Forks.
