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dpilot83

Posted 8/5/2018 22:05 (#6913372)
Subject: Back to the basics: Market Structure

I started to look at charts again this evening. I haven't really looked at them much since I prematurely exited my CZ18 hedges that I had entered at $4.25 or so. I exited them at $3.87 more on a whim than anything and regretted it quite quickly. Last week price made it back up to $3.88 and I re-entered those hedges since I was able to do so without a loss. Once again, I did this on a whim. I just felt like my decision to get out at $3.87 was not well thought out (or really thought out at all) so when I had a chance to get back in without taking a spanking, I did so.

One thing I've always struggled with is market structure and I think it's really important to have a good grasp on market structure. I believe it provides the context for everything else that you do with a chart. Since I'm no good at it I figured I would make notes on my charts outlining my thoughts and put them up here for people to discuss. I won't lie, there are a few specific people I'm hoping will comment and set me straight where I am wrong or illuminate things that I may be missing but I'm also not going to be surprised if they do not comment since they seem to get hammered here pretty often.

For what it's worth, even though I now favor technical analysis, I enjoy hearing from those of you who favor fundamental analysis. I really like hearing the guys who talk about expected yields, acres and demand and how it will affect carryout and their opinion on how it will affect price. I also enjoy those who have a good handle on the spreads, basis, etc. I haven't enjoyed the politics much recently. I know if you have a fundamental perspective it's hard to separate the two but it just seems like it's been even less friendly than usual around here recently. I miss the conversations on spreads, basis, carryout and especially chart analysis and am just flat out tired of all of the politics injected into market talk.

So I guess that's another reason I'm posting and exposing myself to a roasting. I like the part of market talk where we try to learn from one another. So without further delay, here we go.

The first thing I struggle with is the extreme basics. How far out do you need to zoom on a chart? As seen below I started second guessing myself this evening right away:

On the next chart below I have zoomed out a little and switched to the weekly. One thing I did not cover in the picture is the following question:

What is the definition of a structural seller? I think a structural seller causes prices to make new lows. So why aren't the sellers at $7.60 structural sellers? There was a brief little rally there and the buyers pushed price back up to $7.60 or so and then the sellers at $7.60 pushed it back down again. Lots of other little blips like that. I guess I don't know how to define it but I think structural sellers make major things happen on the chart. Taken in context, the sellers at $7.60 seem like small fries (even though they may be the same sellers that were at $8.50 and they're just defending their position).

I guess I would like a more specific definition of structural sellers and structural buyers. A clean definition that I can remember and will guide me through any questions about whether I'm looking at structure or not.

One question I have on the above chart is are the sellers at $4.40 really structural? They just barely squeaked out a lower low. Given how big these moves are, scratching out another $0.05 doesn't hardly qualify as a lower low. I would really call that a failure if I was the guy selling $4.40 and was trying to make money pushing the market to lower lows. So maybe the sellers at $4.40 should not be shown to be structural sellers on the chart above?

The following pictures continues to emphasize my lack of confidence on what market structure really is. Again, what's a good, clean, consistent definition of a structural buyer. I assume they are only confirmed when they take out a previously confirmed structural seller in the context below so there are not structural buyers that we for sure know about yet?

So this is really looking at the big picture. I suppose one could zoom out a bit more and observe the price runup as well but this is a pretty long term view we're looking at here. My take for whatever it's worth is that from a structural standpoint the sellers have been failing to make new lows in the corn market since about July of 2015. When a lower high was struck in July or so of 2015, the job of those sellers was to make a lower low and they failed to make significant progress. They failed again in August of 2016 after they held when buyers attempted to make a higher high.

In late 2017 and early 2018 sellers failed to even match the previous low which I believe means buyers succeeded in creating a higher low.

So just from a flat out structural standpoint, I'm getting to the point where I'm feeling like we have a bullish case to be made. Maybe not short term but the sellers at $4.40 have failed to create lower lows repeatedly. They are failed sellers and are destined to get taken out. I wouldn't go so far to say that we won't make a lower low. I just think it's likely that $4.40 gets taken out before $3.17 gets taken out.

Is there anyone who enjoys structural analysis that is willing to tear that apart and tell me what I'm doing wrong and what I'm flat out failing to do?

Thanks.

purplepride0

Posted 8/5/2018 22:31 (#6913423 - in reply to #6913372)
Subject: RE: Back to the basics: Market Structure

West Central MN (between MMF and Larson's)

Wish I had a deep thoughts by Jack Hardy gif available.

Seriously though......i like the way you think, and hope your right

I appreciate you sharing your work

Edited by purplepride0 8/5/2018 22:33

Conan the Farmer

Posted 8/6/2018 04:13 (#6913549 - in reply to #6913372)
Subject: RE: Back to the basics: Market Structure

South Central Iowa

Well put together and a good amount of work; appreciate your effort DP!

I generally agree with most of what you have stated. I think that your basic structure, or classic charting as I like to call it, is the most important and relevant type of charting a person can do.

I disagree with some of the language though. I don't know if it all originates from the same source or what. I don't like when people state that sellers or buyers have "jobs". There are objectives, yes, that people selling or buying believe the price will reach, but to call it a "job" is to act as though they work in concert with one another; they do not.

Most trades are off of recent trend and momentum; break a point and momentum carries us to the next. Do it several times and we have a trend. Retrace part of that trend, perhaps off a longer term point, and then test that low. Fail to reach that low and rebound above our retracement high and we have a pivot and have reversed trend.

In all that, the buyers and sellers are largely the same. Sure, if we get into multi-year or cycle lows or highs, some new speculative interest might arrive, but most buyers and sellers are not unique specimens who only arrive at certain times. There are not sellers with a "job" who fail and new buyers who step in at their failure who were not present before. There is varying amounts of conviction to direction at different moments and for that reason, buying or selling pressure abates. When the pivots are formed, trend and momentum carries us in that other direction. Many of the sellers of before are buyers of now, not failed beings bled dry.

There is not as much mysticism in the chart as is implied by much of the language.

Edited by Conan the Farmer 8/6/2018 04:24

frytownfarmer

Posted 8/6/2018 05:55 (#6913592 - in reply to #6913372)
Subject: RE: Back to the basics: Market Structure

Frytown, Iowa

Hi dpilot, here is a link to my thoughts on this corn formation.

Between loads selling hogs this morning so I don’t have more time to go through your post but will look forward to reading it later. Looks like a good one (my kinda market post!) compared to all the political bickering lately

https://talk.newagtalk.com/forums/thread-view.asp?tid=727646&Display...

GOMSK

Posted 8/6/2018 06:12 (#6913615 - in reply to #6913592)
Subject: RE: Back to the basics: Market Structure

Be very curious to see your opinions, if there is a hammering out on the corn monthly, suggests there is one more test lower?

frytownfarmer

Posted 8/6/2018 06:43 (#6913651 - in reply to #6913615)
Subject: RE: Back to the basics: Market Structure

Frytown, Iowa

Pretty simple, corn is in this range and will remain in this now tighter range until “an event” occurs then price will shoot up near double the current range

Don’t know the even and haven’t figured out the timing either

Conan the Farmer

Posted 8/6/2018 06:44 (#6913655 - in reply to #6913592)
Subject: RE: Back to the basics: Market Structure

South Central Iowa

Hammertime?

That would be great!

(HammerTime (full).png)

(Pig (full).jpg)

Attachments
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HammerTime (full).png (54KB - 28 downloads)
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Pig (full).jpg (35KB - 38 downloads)

NowGleaner7

Posted 8/6/2018 07:25 (#6913738 - in reply to #6913372)
Subject: RE: Back to the basics: Market Structure

Eastern Ontario

Thank you & Excellent Post!

J P

Posted 8/6/2018 07:27 (#6913742 - in reply to #6913372)
Subject: RE: Back to the basics: Market Structure

Hi pilot,
Hope things are well. Great post. Lots of great questions. Market structure is alot of things. It's a gap, a OSB, and ISB, a KR, groups of bars can be lumped together, and pivot is market structure as well. So it's a pretty general term that can have a lot of references tied to it. A "structural " pivot is defined that way because it did something that confirms it. And thus we can use it to build a framework to understand what is going on in with price.

Regarding scaling, I would imagine it depends a little on your screen size. If you are using a 55" 4k screen you obviously could put more on than someone using a Ipad. So its kind of a personal preference. As a general rule, go up in time before scrunching in. Going up in time get rid of the day to day drama and makes it a much more pure chart.

First, kudos to you. Looking at the market structure is the most important thing you can do. And honestly, I find myself drawing less and observing more all the time. It is IMHO the most under utilized technique that anybody can do, the most powerful....and the most over looked. It is so stupid simple that nobody does it. Yet, if you had just marked buyers and sellers, you would have known what price should do 3 out of the last four years, and thus could have sold pennies from the high without giving a hoot about what the weather, or acres, or the radar, or the MACD or the 38% fib. We blind ourselves with information when knowing less is truly knowing more.

So you have three set of sellers that we are going to be thinking about. The first are at the all time highs. That is the biggest on the board. The next lies around 5.20, and the last confirmed seller are the ones near 4.50. They are the ones that we need to get rid of first. The term "job" is designed to help us create a simple framework in our minds. In a downtrend - for it to continue price must do what? Make lower highs and follow them up with lower lows and vice versa in an uptrend. So, when the sellers at 5.20 were successful in making new lows and price started to pull back, what is the job of that swing? To make a LOWER HIGH. It took three attempts for those sellers to get their job done, but they did it in 2016. FACT: Sellers are at 4.50. Not, they were there because of a record crop, or a report, or a weather forest....Who cares, why. Fact: They were there. So price finds a low and pulls back. What is its job if the downtrend is to continue? Make another Lower high. FACT: Sellers showed up last summer and tried to make new lows and failed. Not fact because of carryout, or the weather, or exports. FACT: Sellers tried and failed. So now we have a higher low. What is the job of that swing? A HIGHER HIGH. You knew that already back last fall. You didn't need to know acres, or weather, or a fancy line. All you needed to know what that prices job is to make a Higher High. So knowing that why get all worried about whatever the drama is of the day, and sell before price nears completing its job? And price did exactly that. FACT: Buyers were at 3.35ish. 555....you listen close so you can get over your confusion.... So price had two jobs to do. The bigger swing's job is to make new lows, while the smaller "wiggles" job was to make a Higher High. That's why price often has multiple jobs to do. So FACT: Sellers tried again at last years highs and thus far failed to make new lows. If this sticks and remains,....should we be panic selling because of tariffs, or because everybody is going to plant corn and no beans next year? No. Fact, if price makes a higher low, its job becomes making a higher high. Now, price isn't perfect, but its really, really good at doing its job and more times than not, it will be successful at completing its task. So without knowing anything else, you have a simple framework to use to help you understand what price is doing. Since we are on this, why do we think it will be so important to sell at least some of multiple years production if we get range extension? Because the facts are that buyers were not willing to buy at 5.80 and seller are confirmed at 7.40. And if we go to 6, what would that be? A lower high. And what is the job of price then? To make Lower lows, or go to prices below were we went in 2016. Not go there if there is a big crop, not if the weather, and acres agree. That becomes that swings job. And it will expend all the energy it has stored attempting to do it. That is why is so important to understand what is going on the chart. It's a stupid simple concept. You can load a monthly, spend 10 minutes marking it out, and you are done. You know have a simple framework to help you keep clarity of the situation. It is the one technique that will make you a better marketer instantly.

The sellers at 4.40 are absolutely structural, but they had to be pretty disappointed. Price spent 2 years going horizontal and barely squeaked out new lows. And if you were the whale that sold there, and was thinking. "Man the first time I sold it went 3.50, the second time it went 2, and third time I barely squeaked out a buck". Do you think he is gonna chase price when his risk reward is collapsing? No. He will want to sell that - if at all- where he can minimize his risk and maximize it reward. And you have another reason why price can't make new lows technically....the big boyz aren't gonna chase price. The funds are NOT big boyz. They are the heel biting Chihuahua.

Regarding structural buyers. There are two. The ones on the lows, and the ones on last years lows. But they would be considered "minors" at this time. Until they break the back of the bigger formations sellers at 4.40, they are minor buyers. They confirmed absolutely but so did the ones post 2014 a couple times and they eventually got taken out with new lows. Basically, a simple way to think of it is when you were in grade school, every class had a bully - the "tough" guy. He is the minor. He runs the show in his class. But when it's time for recess and K through 6 is on the playground, but sixth grade "bully" rules the roost. The minor bully tries to run his show, while staying out of the way of the bigger bully. That goes on until the minor bully becomes the 6th grader, and the previous bully doesn't show up to defend his territory or the "minor" bully punches the bigger bully in the nose..... And thus the big bully has changed and the sellers don't show up.

Hope that helps.

Take Care

Edited by J P 8/6/2018 07:51

JUST LEARNING

Posted 8/6/2018 08:13 (#6913840 - in reply to #6913742)
Subject: Good post, thanks

KS and NE in eastern 3rd

dpilot83

Posted 8/6/2018 09:09 (#6913958 - in reply to #6913742)
Subject: RE: Back to the basics: Market Structure

Wowsers. I had not at all thought about how a higher high at $6.00 isn't really a higher high, in the big picture it's a lower high...

This is a long road.

dpilot83

Posted 8/6/2018 09:15 (#6913969 - in reply to #6913742)
Subject: RE: Back to the basics: Market Structure

Thanks for all of the effort there JP. I have read it several times and will do so several more times as I get time.

Interesting how you phrased it in a way that takes the voodoo connotation out of it. You basically said, "If a trend is to continue, you need lower lows and lower highs. If you're not getting those things, the trend either is changing or is trying to change"

You also said, again not in so many words, "We can have a pretty massive upward trend that is still a part of a larger bearish trend due to the size of these formations".

It's going to be tough to keep our heads screwed on straight and not be looking for $10 corn when it finally breaks the $5.20 sellers.

J P

Posted 8/6/2018 09:43 (#6914026 - in reply to #6913969)
Subject: RE: Back to the basics: Market Structure

dpilot83 - 8/6/2018 09:15

Thanks for all of the effort there JP. I have read it several times and will do so several more times as I get time.

Interesting how you phrased it in a way that takes the voodoo connotation out of it. You basically said, "If a trend is to continue, you need lower lows and lower highs. If you're not getting those things, the trend either is changing or is trying to change"

You also said, again not in so many words, "We can have a pretty massive upward trend that is still a part of a larger bearish trend due to the size of these formations".

It's going to be tough to keep our heads screwed on straight and not be looking for $10 corn when it finally breaks the $5.20 sellers.

Hi Pilot,
Yep. WE make it too darned difficult as producers - and certainly chartists as well. If we know that price made a HL, we know that price should make a Higher high. Not if we get a planting carrot rally, not if China comes to the table, not if we plant less acres, that's the job of that swing..period.

Range extension in these contexts very well will be nothing more than a larger degree correction in a bear market. Any rally that does not make new highs in either market will be a lower high and its job is a lower low. AND if you draw a pitchfork on that pivot what direction will it be pointing? DOWN. So the probable path of price would be down and we have a high degree of certainty where it's going - 80% to the ML. None of us wants to go there, but the only choice we have in regards to that is how much risk do you want to carry.

Adding in more complexities, but if you think way back pilot, you and I had a discussion privately about this sort of thing in wheat years ago. Second level sellers backed by a zoom zone.....And what is 5.20 is in corn? And when you look at the most recent bean chart, where did beans run into trouble......Yep. Context is key with every thing in price. If we are going to go to 8 in corn, you gotta get by those guys, and we already know what a failure to reach the ML at better than 6 would mean.

Take Care

Edited by J P 8/6/2018 09:48

JC STONE

Posted 8/6/2018 10:48 (#6914129 - in reply to #6914026)
Subject: RE: Back to the basics: Market Structure

When you say "new highs" are you refering to new all time highs or just a higher high than the previous one?

J P

Posted 8/6/2018 11:13 (#6914166 - in reply to #6914129)
Subject: RE: Back to the basics: Market Structure

JC STONE - 8/6/2018 10:48

When you say "new highs" are you refering to new all time highs or just a higher high than the previous one?

Hi JC,
We are talking the big swing, so it needs to take out the all time highs. Anything less that - assuming its a relative swing - would be a lower high. The relative swing part is the confusing part.

Take Care

IN555

Posted 8/6/2018 11:18 (#6914170 - in reply to #6914166)
Subject: RE: Back to the basics: Market Structure

NW Indiana

It took 12 years to take out the $5.56 high from 1996. I would guess it takes longer to make a new high this go around. 1996 was supply based. 2008 was demand based. 2012 all time high was supply and demand based.

J P

Posted 8/6/2018 11:21 (#6914181 - in reply to #6914170)
Subject: RE: Back to the basics: Market Structure

IN555 - 8/6/2018 11:18

It took 12 years to take out the $5.56 high from 1996. I would guess it takes longer to make a new high this go around. 1996 was supply based. 2008 was demand based. 2012 all time high was supply and demand based.

It's already in price 555....It's already in price

Take Care

IN555

Posted 8/6/2018 11:45 (#6914232 - in reply to #6914181)
Subject: RE: Back to the basics: Market Structure

NW Indiana

Yep and you can predict it. Enjoy your vacation homes and yacht while you laugh at us unwilling to learn. Good luck with that.

J P

Posted 8/6/2018 12:02 (#6914281 - in reply to #6914232)
Subject: RE: Back to the basics: Market Structure

IN555 - 8/6/2018 11:45

Yep and you can predict it. Enjoy your vacation homes and yacht while you laugh at us unwilling to learn. Good luck with that.

Hi 555,
I have an idea and have shared it numerous times. There is nothing we can do about it anyway. Its too far out protect against. Just manage risk as best we can using the best tools we got. I spent all morning trying to share some perceived knowledge...Not once did I laugh at you or anybody else....What did you do constructive today?

Take Care

Edited by J P 8/6/2018 12:10

Centuryfarm

Posted 8/7/2018 10:50 (#6916299 - in reply to #6914170)
Subject: RE: Back to the basics: Market Structure

You won’t see a new plateau until 2040-2042. 1996 was a Anomaly.

WeaveFarmer

Posted 8/6/2018 09:06 (#6913953 - in reply to #6913372)
Subject: RE: Back to the basics: Market Structure

Boone Co. Iowa

December 19 corn is at $4.10 as I type this.

That is a good price, compared to our current year. While we had some opportunities to sell Dec. 18 corn above $4.10, I don't know that there were a lot of those opportunities.

This is why I tend to agree with the bullishness that is talk about RE: corn.

allis7040

Posted 8/6/2018 10:24 (#6914088 - in reply to #6913953)
Subject: RE: Back to the basics: Market Structure

Tama iowa

This is over my head and trying to explain will probably be confusing. I struggle with confirming a low or high. It seems the more you pan out on a chart the more lower lows and higher highs. I have circled patterns that appear to look close to where we are now. (probably wrong on the patterns) I do not know if a new low below 3.20 or we take out the 4.40 first. With price not really testing the 3.20 yet I would expect taking out 4.40. With that said I also think we have a minor swing down shortly. Hence my understanding of context or patterns or whatever is poor at best . Could the swing down actually be more than a minor swing and is just part of a larger swing down. Have we went sideways long enough to build the energy to take out 4.40s. As of now my only plan is I sell one year out on anything profitable until we take out 4.40. Then will sell multiple years over 4.50 no matter if the later years are lower than nearby prices. Thanks for all your guys time and input. This is the most informative post in a while.

J P

Posted 8/6/2018 11:55 (#6914262 - in reply to #6914088)
Subject: RE: Back to the basics: Market Structure

Hi Allis,
It seems you are getting caught in the pitfalls of price. Unfortunately I have trouble explaining it but its all about relative structures. When price makes a low, it is meaningless until it is confirmed or denied. It's simply a level where somebody tried to do something. So if you are comparing big swings to big swing, price has never been in a downtrend. But on the minor level, as we know - it hasn't been all up.

So, when price makes new highs, its confirmed, and until its broken it remain in tact. And all the other dancing around inside the swings are just minor swings doing their thing. So essentially you have these formations one price structure. Each has their own frequencies, and expenditures of energy - and likewise, their "cost" to price will be different too.

The last swing has a different look. It is much more vertical than the other apparently, and its minor that is big to us, 2008, is just a minor. People get all giddy.."it's holding support..its holding support". Ok...it not support on a relative swing basis. Price really likes to revisit those areas.

In fact, I could see it very easily as one whole formation. Frequencies are undeniable. But none of us will be around to see it play out...but we will be under its influence.
Hope that helps. Take Care

JC STONE

Posted 8/6/2018 12:16 (#6914303 - in reply to #6914262)
Subject: RE: Back to the basics: Market Structure

Okay , so here we sit in the middle of the range in your last chart. Do we head for sub 3 or 5.50. The last low was just a wisker under the previous low. Is that close enough or do we need to see another higher low which would be a break from today.

I know you don't like the MACD , however its hinting of possible higher prices ahead. Not sure if old crop holders will be able to catch the wave however.

I may be watching the new all time high from the Pearly Gates!

J P

Posted 8/6/2018 12:37 (#6914358 - in reply to #6914303)
Subject: RE: Back to the basics: Market Structure

JC STONE - 8/6/2018 12:16

Okay , so here we sit in the middle of the range in your last chart. Do we head for sub 3 or 5.50. The last low was just a wisker under the previous low. Is that close enough or do we need to see another higher low which would be a break from today.

I know you don't like the MACD , however its hinting of possible higher prices ahead. Not sure if old crop holders will be able to catch the wave however.

I may be watching the new all time high from the Pearly Gates!

Hi JC,
I have no problem with the MACD it's another tool. It all comes back to energy JC. When those sellers stepped down at 5.20, they made new lows at 3.20 or so. They "extended" quite significantly right? We then spent two years in the next pull back, - which was double the previous pullback's time, and when we went lower, we squeaked out new lows. Longer time meant less extension. FACT: Sellers made new lows. Also FACT: After two year of storing energy we barely made new lows - didn't extend nearly like before. So essentially those sellers lacked the energy to overcome the tug on price higher even after a duration double the previous pullback. Like we have stated before - its an epic failure. So price pulls back again,..another 2 year pullback trading inside the last swing - same size pullback. Knowing that last time we pulled back for this amount of time and we failed, and we just did essentially did the same thing -inside the other swing - what do you think the probable outcome is? Do you think those sellers got more energy today than two years ago? We don't know for sure yet, but I would guess probably not. So with that assumption.... FACT: Sellers after another two year pullback lack the energy to make new lows and infact - to date anyway - can't even match the last swing length lower. So does all that sound bearish or bullish to you JC? And never once was the MACD used. If you try and frame price action as the expression of energy the picture will become clearer and removes the fundamental noise. So we have another attempt lower, and a HL. What should happen? A HH right? And at some point the energy being stored on the "X" axis will be so great that price will have to express itself vertically on the "Y" axis to relieve the pressure. It's all in price, but price will do what it wants on its time and when its ready. Not when we are.

Take Care

JC STONE

Posted 8/6/2018 12:58 (#6914391 - in reply to #6914358)
Subject: RE: Back to the basics: Market Structure

So if I understand what your're saying is we need to be looking for a
higher high post 4.40ish or do you mean post 4.15 ish? We just don't know when.
It does tend to go parabolic when its time, I can see that!

Edited by JC STONE 8/6/2018 13:02

J P

Posted 8/6/2018 13:52 (#6914494 - in reply to #6914391)
Subject: RE: Back to the basics: Market Structure

JC STONE - 8/6/2018 12:58

So if I understand what your're saying is we need to be looking for a
higher high post 4.40ish or do you mean post 4.15 ish? We just don't know when.
It does tend to go parabolic when its time, I can see that!

Basically. Use the high probability tools that we have, overlaying the market structure and make the best decision we can. As I have stated before, it most likely remains a 2019 event.

Take care

IN555

Posted 8/6/2018 11:42 (#6914224 - in reply to #6913372)
Subject: RE: Back to the basics: Market Structure

NW Indiana

Great post with some intriguing questions. From my perspective the line of balance should be drawn post spring 2014. For fundamental reasons the price prior to that accomplished its job and currently is basically irrelevant. Until the $4.50 level is taken out, I see little point in discussing things prior as the moving parts at work aren't even close to the same. During the previous time frame we were trying to ration demand during a time of extreme demand growth, tough job but the market did it. If we do have supply issues it will take a far less price to ration demand enough to maintain adequate carryover levels. JP likes to point out that weather, acres, tariffs etc do not matter. However you can look at almost any point in time and price follows the perceived supply and demand picture. Just as some people's work on median lines showed last summer price should have gone up significantly but mother nature decided a cool august would be the victor of price.
There is no magic system, if there was a way to predict the future price then that would be the day the market was broken. There are thousands of pieces of information creating thousands of different opinions. As another poster said a few months back, the market is always wrong but is constantly looking for the right price. The right price is never found because there is always unknowns.

As far as producers we should be better at recognizing our job. Our job is to produce a product and sell it at profitable levels. This job comes with great risks. Production and price are our two greatest risk. We do what we can to better insure production but ultimately mother nature will determine our success. Price is one thing many of us fail to manage well. You bring up the carry. The market is willing to pay us more to sell the future and that buyer assumes that price risk. Yes they have the opportunity for reward, hence why they were willing to except the risk. But as a producer is it really sound business for us to be the ones taking on that risk? Take today for example, if I needed to make a new crop sale I could get 3.85cbot, that price reflects much less risk than previously.
However if I was willing to reduce my risk in business and push it upon someone else, shouldn't I be selling zc19 at 4.11 instead?? It is basically a .26 cent call on next years crop. Are you willing to buy at the money calls for .26 for next year? Seems like a risk you could be giving up a lot of your profit.

My point is there is so much more to discussing price and managing risk. We get caught up in trying to predict the future and catching the "high". Personally I think that is a job better suited for a different profession(traders).

J P

Posted 8/6/2018 11:59 (#6914272 - in reply to #6914224)
Subject: RE: Back to the basics: Market Structure

IN555 - 8/6/2018 11:42

Great post with some intriguing questions. From my perspective the line of balance should be drawn post spring 2014. For fundamental reasons the price prior to that accomplished its job and currently is basically irrelevant. Until the $4.50 level is taken out, I see little point in discussing things prior as the moving parts at work aren't even close to the same. During the previous time frame we were trying to ration demand during a time of extreme demand growth, tough job but the market did it. If we do have supply issues it will take a far less price to ration demand enough to maintain adequate carryover levels. JP likes to point out that weather, acres, tariffs etc do not matter. However you can look at almost any point in time and price follows the perceived supply and demand picture. Just as some people's work on median lines showed last summer price should have gone up significantly but mother nature decided a cool august would be the victor of price.
There is no magic system, if there was a way to predict the future price then that would be the day the market was broken. There are thousands of pieces of information creating thousands of different opinions. As another poster said a few months back, the market is always wrong but is constantly looking for the right price. The right price is never found because there is always unknowns.

As far as producers we should be better at recognizing our job. Our job is to produce a product and sell it at profitable levels. This job comes with great risks. Production and price are our two greatest risk. We do what we can to better insure production but ultimately mother nature will determine our success. Price is one thing many of us fail to manage well. You bring up the carry. The market is willing to pay us more to sell the future and that buyer assumes that price risk. Yes they have the opportunity for reward, hence why they were willing to except the risk. But as a producer is it really sound business for us to be the ones taking on that risk? Take today for example, if I needed to make a new crop sale I could get 3.85cbot, that price reflects much less risk than previously.
However if I was willing to reduce my risk in business and push it upon someone else, shouldn't I be selling zc19 at 4.11 instead?? It is basically a .26 cent call on next years crop. Are you willing to buy at the money calls for .26 for next year? Seems like a risk you could be giving up a lot of your profit.

My point is there is so much more to discussing price and managing risk. We get caught up in trying to predict the future and catching the "high". Personally I think that is a job better suited for a different profession(traders).

Hi 555,
Yep. You are correct. Our job is to manage risk and use the best tools at our disposal doing it. Trying to sell the high is a bad plan, but we can use our tool to figure out where its likely going, and make a plan that gets us close. If YOU had just monitored the buyers in beans the last year instead of getting all worked up about this and that, and mocking us all year, you would have seen nothing but buyers willing to pay more for two years....Then about the first of April something changed. You didn't need to know what...and it didn't matter. But you had a month to offset risk if you wanted too. Instead you choose to sell too early...and lift too early "preserving profits".. Price knows. It's us that gets it wrong.

Take Care and good luck.

IN555

Posted 8/6/2018 12:14 (#6914301 - in reply to #6914272)
Subject: RE: Back to the basics: Market Structure

NW Indiana

Actually I didn't sell to "early". I sold a point in time I had predetermined I wanted to reduce my risk. Did I miss out on some upside in the market? Sure, but neither you or I could predict the drought in Argentina and I personally will not Monday morning quarterback claiming I could. Did I lift to "early". No I lifted a predetermined point in time that I felt my price risk was manageable and production risk was high. The Fat lady hasn't decided my outcome yet on those sales. Besides you are likely forgetting the hedge profits from 2019 sales, add them in and 2018 could turn out to be a very good year. Hopefully you are in a similar position, as I know many others on here haven't been as fortunate production wise this year.

J P

Posted 8/6/2018 12:20 (#6914312 - in reply to #6914301)
Subject: RE: Back to the basics: Market Structure

IN555 - 8/6/2018 12:14

Actually I didn't sell to "early". I sold a point in time I had predetermined I wanted to reduce my risk. Did I miss out on some upside in the market? Sure, but neither you or I could predict the drought in Argentina and I personally will not Monday morning quarterback claiming I could. Did I lift to "early". No I lifted a predetermined point in time that I felt my price risk was manageable and production risk was high. The Fat lady hasn't decided my outcome yet on those sales. Besides you are likely forgetting the hedge profits from 2019 sales, add them in and 2018 could turn out to be a very good year. Hopefully you are in a similar position, as I know many others on here haven't been as fortunate production wise this year.

Hi 555,
Great. Glad to hear that. I wish you no ill will. I want the best for you and everyone else. 2019 sales are 2019 sales. Not to be combined in my world, but my world isn't yours obviously.

Been wonderful...I should see what else I need to do today.

Take Care

johndeere76

Posted 8/6/2018 12:12 (#6914300 - in reply to #6913372)
Subject: RE: Back to the basics: Market Structure

NE Nebraska

partimer

Posted 8/6/2018 13:23 (#6914445 - in reply to #6913372)
Subject: RE: Back to the basics: Market Structure

Northwest Iowa

Great thread, here guys. JP did a very good job of trying to explain how a market works. In a broad sense, even for pure fundamentalist's, the market reacted differently to the "news" than expected. That is the traders JP refers to reacting to the market structure. The futures market and underlying charts are a reflection of traders actions and reactions. I'll stop as I don't want to garble some great posts tied to this thread. Really appreciate your time spent on this JP. Good job.

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