Inside the Market

In Life and Markets, Not All Mistakes Are Equal

Todd Hultman
By  Todd Hultman , DTN Lead Analyst
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(Urupong, Getty Images)

Everyone wants to sell their crops at the high of the market. Knowing just when is not so easy, however, and it is important to keep a bigger perspective.

Earlier this summer, we saw the price of spot corn go to $7.75 on May 7 and spot soybeans go to $16.77 1/4 on May 12. Listening to many producers, I get the sense that most were out of the market long before prices reached their highs. I must admit, I was one of those advice-givers urging producers to make sales on the way up.

My final 25% sale recommendations for 2020 crops were when March corn was near $4.89 and May soybeans were near $14.13 -- both well short of their eventual peaks.

Of course, it bothers me to not have recommended higher prices. Looking back, it is obvious I was influenced by the uncertainty of the global pandemic and by large ending stocks estimates for corn and soybeans in fall of 2020. Given the environment at the time, $4 corn and soybeans near $10 were too inviting to ignore.

After 36 years in the commodity business, I can say that trying to predict market tops is a fool's game, even though it doesn't stop us from trying. Market bottoms are much easier to identify, are typically slow to form and are characterized by low price volatility during times of heavy grain surplus.

Market peaks, on the other hand, occur during times when supplies are scarce. Scarce markets are anxious markets, and anxious markets aren't necessarily rational. Prices can turn extremely volatile without warning.

Writer G.K. Chesterton once said about life, "its wildness lies in wait." Similarly, it is the market's underlying wildness that makes the selling decision in a bull market much more difficult than spectators realize. We can analyze the factors all we want, but we can never get rid of the uncertainty of knowing when a high-priced market is ready to turn. In those situations, I typically advise phasing in sell orders as prices rise, reducing one's bet as the rewards get higher.

In life, we will make all sorts of mistakes; the good news is that if we pay attention, we get to learn from most of them. Some risks producers face don't grant a second chance. Trying to dislodge corn in a grain bin by yourself or getting your sleeve too close to an auger are the kinds of mistakes you never want to make.

In the bigger scheme of things, selling crops at profitable prices on the way up but short of their eventual tops are the kinds of marketing decisions we can make and live to see another day. If only we could have that problem every year.

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-- Read Todd's blog at about.dtnpf.com/markets

-- You may email Todd at todd.hultman@dtn.com, or call 402-255-8489.

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Todd Hultman