Stop Chasing Markets

September 18, 2017

In July the average price for December corn was $3.95, and at the end of August we saw a new corn contract low of $3.45*. That $0.50 drop is hard to stomach.

Chasing the market can be toxic. Always waiting for those few extra cents often puts you at risk of missing out on the price you need to be profitable. 

Where does the hesitation that prevents us from doing what makes sense on paper come from?

As humans, there are times when we make decisions that are based on emotion rather than logic. We have a tendency to look at what we’ve grown through rose colored glasses, and it’s easy to look back on the past and remember only the good parts (like the highest price that you sold your grain for). But, these reflections are clouded by our memory and our emotions. This is where behavioral finance comes into play. 

Behavioral finance is the intersection between economics and psychology—our rational reasoning colliding with our emotions.

Let’s take a look at this historical price chart: 

9_15_17 Stop Chasing Markets CZ6.png


As it’s climbing, you start to get overconfident, and as it continues to move upward you get greedy. You may hold your grain to sell later, because you are sure the market has more room to move up. And then, the market tanks. Fear sets in and as you see the market continue to drop you panic. The end result? You sell at a lower price than you had hoped for.

The way to combat this is to try, as much as possible, to maintain ‘emotional neutrality’. This is when you remove any weight that emotions may play when making objective financial decisions.** This can be difficult when you’ve spent all year putting countless hours into growing your crop. But you know that eventually, you will have to sell it.

So, how do you remove emotion from your grain marketing? Start with having a plan.

Maybe that plan is in your head, on paper, or on a spreadsheet—no matter where that plan lives, commit to something. Start with dividing your production into marketable units, then select a time to sell, a price target, and a strategy. Being able to follow through on those 4 things will put you on the road to a more profitable grain marketing plan.


*Source: SIX Financial Information. Retrieved from: http://quotes.wsj.com/futures/CZ7/advanced-chart
**Source: Investopedia
  

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Emma Shaver

Author

Emma Shaver grew up in Orono, Minnesota and attended the University of Minnesota where her passion for agriculture began. She worked at Cargill for 4 years in marketing and sales roles, where she developed a deep knowledge of grain marketing. In 2017, Emma joined the FarmLogs team as a Product Marketing Manager.