What were you thinking?
What are the markets thinking?
I’ve been away for two weeks, and that’s what I wondered when I looked at the crop markets and saw the carnage on the charts.
Canola futures have slumped from around $510 per tonne to $485, while cereal crops have continued and extended the weakness that first infected the markets in late May.
Corn at $3.50 per bushel has fallen back to levels that have been the lows since 2006, before the (now dead) commodity bull market began.
Clearly, sentiment has taken a boot to the tender bits.
What happened? I chatted with a number of analysts about it, but that’s not what I’m going to write about here today. There are always concrete reasons why the market gets spooked. (Right now, it’s mostly trade tensions, ending stocks numbers and weather.)
What’s most interesting here is what the selloff demonstrates about short-term sentiment and how extremely it can move markets.
Far from being machines that merely measure rational inputs like supply and demand numbers, the markets (in the short term) are emotion meters that gauge how people feel about whatever numbers they’re looking at. Statistics and prices reconcile over time, but emotions rule in the day-to-day.
As an analyst said to me July 16, “markets are human, and humans are stupid.”
Farmers are part of the market, an important part. They’re part of the emotional mix.
So take this selloff as a chance to take a look at yourself. If you had canola in June that still needed to be priced, did you price it? Or were you uber-bullish and holding on?
Now that prices have tanked, are you shutting the bin doors and refusing to sell or scrambling to sell before the wheels come flying off the hell wagon?
For farmers who follow a disciplined hedging and pricing approach, there probably hasn’t been too much panic and greed. If you’re following a strategy, you probably aren’t making most of your decisions based on hunches about whether the market is going to go up or down.
But for those who rely upon their guts, this is a good chance to take a look at how good they are at it.
Did you get this one right? Did you take advantage of $520 new crop canola futures? Or did you miss it and wish you’d sold something and don’t know what to do now? (And you have fall bills coming and need to start pricing something.)
No doubt some have great instincts and get their guesses more right than wrong.
Lots more are just mugs who get some right, some wrong and muddle through.
And some are always missing bull markets as they wait for higher prices and panic-selling during bear markets, becoming that bottom-third seller that marketing pros say most people tend to be.
There’s been a big shift in market sentiment for canola, and it’s all happened in the last few weeks, so step back and take a look at yourself and figure out how well you handle these situations.