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Pittsburg, Kansas | I suspect you may be right.
What I have a problem with, is the mathematical fact that the market is a zero sum game. If I make a dime extra using futures, someone else has to loose that dime. Either the end user buyer or another hedger that does really bad or a speculator.
Now I can understand guys like Ray and Maizeing wanting coverage to make sure their plants don't go without grain and shut down. I can understand there might be a little wiggle room that they in the overall scheme of things are willing to pay a slight amount more to ensure they never run out. But these are smart dudes. They will not have a job long if they pay much more than a very minimal amount over the average market. Since they are about at least ten times smarter than I am when it comes to marketing, I figure they are not the ones that I will beat to get something above market averages.
So that leaves me with having to beat either speculators or other farmers that do an even worse job of hedging than what I do. Then I think about guys like Terra Farms and a bunch of others on this board, and decide that on average, I'm definitely not smarter than them at marketing. So where am I going to get this market average beating return? All that is left is the speculators. Now I would not say that all of them are that bright, but the not so bright ones are going to run out of money soon and be gone. So that leaves mostly bright ones. Am I likely more bright than the ones left? That reminds me of the story of doing a survey of drivers and asking "are you an above average driver?" and getting a 70 or 80% positive response! So am I "brighter at marketing than average?". I would like (we all would like) to think so, but as I look around at others reality tells me I likely am not.
So there goes my odds of beating the market shot all to hell. Now Ray would tell me (he has), "let's not over think this marketing". And he is probably right. I think way too much. My wife can knit or watch CSI or cooking shows all day long. I just sit there very often and quietly think. A way too much. But I keep thinking "marketing is a zero sum game.................... am I really smart enough to out think the aggregate of traders and marketers on the CME?". And I keep coming up with this resounding conclusion "not only no, but hell no".
So my conclusion is to not play a game that I am ill equipped to participate in.
Now Ray or Maizing will come on and show me how by using basis contracts and futures, I can lock in a higher and maybe a guaranteed price. Maybe. They are a lot smarter than I am so they are probably right. I just have a problem understanding why they wish me to make more so they can make less (remember - zero sum game). I know they are good guys so maybe they are just looking ouit for us farmers. It is possible.
I have another theory. Probably wrong. I think futures in aggregate cause us all to accept a lower price average in aggregate. Think about it. Any time we sell grain ahead, either physical or paper, for every bushel sold ahead that is one less bushel a buyer has to worry about purchasing. It looks like to me, what we might potentially make by locking in basis and futures is lost to an overall lower average market futures price because some of that demand is being satisfied by paper production of grain that does not exist. Of course if that is actually the case (and it may not be), then me not using the tools available to capture what I can means someone else will.
Makes my head hurt. I just know back before I used futures (did use futures and options for many years) I did ok, and now that I have quit using them I still seem to be doing ok. Maybe I'm just too dumb and that is ok. But isn't it important to recognize ones capabilities and shortcomings? I don't think I am smart enough to get ahead using futures and options. Better I just leave it to the smart ones to use them. When I was using them most of the time I came out behind except for a couple of times when I did really well. I'm not sure if I ended up ahead of the game or behind, but just like winning at a Casino I figure if I play long enough the odds are stacked in someone's favor other than mine.
Time to go scuba diving again before my head really hurts. I've definitely over thought this.
John
Edited by John Burns 1/29/2016 11:53
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$ smoking - grains and beans up? NT
