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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). | |
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Back to the basics: Market Structure
