Kub's Den

Three weeks into the year 2024 -- is it going the way you planned? Do you have a good sense of how the next 11 months will go? Where will you be in mid-December 2024 and how will you be feeling about the choices and actions you've made?

The temptation to consult Tarot cards or fortune cookies for a glimpse at the future is strong -- especially for people whose businesses depend on the unpredictable prices in the commodity markets. If only we could just be told: Will grain prices be even lower by harvest 2024? Will conflict in the Middle East drive up fertilizer prices? Will cattle prices stay strong through the end of the year?

But here's the sticking point -- even if you received a perfectly accurate market forecast, it might be useless to you, because you have no idea what to do with the information. If someone had told you in mid-2019 that within a year, the entire world would be dealing with a pandemic, I suspect you would have: a) discounted the forecast as unreliable; then b) done nothing because you couldn't fully visualize the effects of that information. That's what I would have done, if I'm honest.

So, what good is asking for a market forecast today, even if you trust the forecaster to be knowledgeable and diligent? Financial Times columnist and economist Tim Harford said, "For a forecast to be useful, it is neither necessary nor sufficient that it be accurate. That might seem a bizarre claim, but we only know whether a forecast was accurate when it is too late. In advance, what we can hope for from our prophets is that they open our eyes to different plausible futures, motivate us to anticipate threats and opportunities and remind us that, in the end, the future cannot be known. It can only be imagined."

Imagining the future, with specific details relevant to our own lives, may be a far more powerful activity than listening to any number of forecasters. The Prussian Army started playing "war games" in 1824 to test military tactics in table-top simulated conflict. In a war game, the players must continually respond to moves by intelligent "enemies" whose own decisions shape the conflict as each scenario evolves. Militaries (and businesses) around the world are still playing war games to give officers the experience of making decisions in fast, "live" conditions -- either incomplete or superfluous information, with intel or communications which may be delayed, and scenarios which may be unpredictable.

It might be difficult for a grain producer to convince his five favorite neighbors and their local merchandiser to sit down for a table-top "war game" that acts out everyone's decisions if corn goes to $3.50 per bushel; or $5.50 per bushel; or if the Mississippi River dries up next fall and basis collapses; or if fertilizer shipments don't arrive in time; or if an unknown virus wipes out huge portions of the U.S. livestock herd. Or whatever.

Nevertheless, dedicating some time to visualize clear, specific scenes that may occur in your future can be helpful. It might motivate real action if you have actually closed your eyes and really pictured what the world may be like in the future, and what you could do between now and then to get yourself in a better position. Picture yourself looking at a market screen in December 2024 and the cash price of corn is $5.50. Then picture yourself looking at the same screen and the cash price of corn is $3.50.

That's the problem with asking for a market outlook or forecast of prices. If someone gives you an answer -- one answer -- that answer will almost certainly be wrong, and it doesn't motivate much preparatory action. "But two compelling explorations of mutually exclusive futures?" Harford suggests. "Now we are starting to move away from the sterile question, 'What will happen?' and toward the fertile question, 'What would we do if it did?'"

**

Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of grain or grain futures or options involve substantial risk and are not suitable for everyone.

Elaine Kub, CFA is the author of "Mastering the Grain Markets: How Profits Are Really Made" and can be reached at analysis@elainekub.com.

(c) Copyright 2024 DTN, LLC. All rights reserved.