Analysts stick to their guns

It’s OK to be wrong for the right reasons.

That’s especially true if you’ve been wrong while sticking with a theory that you believe remains true.

That principle was finely demonstrated by two grain market analysts at Canada’s Outdoor Farm Show in mid-September. Both admitted they’d called the grain markets wrong, for extended periods, but that didn’t undermine their analytical approaches.

“I’ve been saying the same story since June, guys, so trust me, I’m real good at being wrong,” said StoneX’s Bailey Elchinger, who doesn’t believe today’s grain market fundamentals support the strength of the present bull market.

She looks at American production, Chinese demand and likely South American production and then fits that with how many of the demand increases and supply shortfalls are already priced into the market. What she sees is that most of the bullish factors are already priced in, and she finds there’s no compelling reason now for prices to surge to snuff out demand.

“I just am a little skeptical,” she said.

Underlining her caution against bullishness today is her view that crop market prices have been in a range for the past five years and today’s prices are reaching toward the upper limits of that range.

“Probability tells me that if I sell some at these levels, I’m selling at a price we haven’t spent much time better than,” Elchinger said.

Corn, soybeans and wheat are all within 10 percent of their five-year peaks.

She’s sticking with her view of the fundamental underpinnings of the market and her observation of the five-year price range and isn’t getting stampeded into today’s bullish euphoria that some are talking about.

Jubinville comes from the opposite position — bullish today but having been bullishly wrong for a couple of years.

I’ve seen his presentations for years and he has always stuck with his theory of “two, two and two,” which is short for: prices rise for two years, then fall for two years, then go sideways for two years.

He expected prices to begin a two-year rise in 2018, but that didn’t happen, at least not in terms of North American crop prices.

He thinks that has a lot to do with United States President Donald Trump’s trade war with China, which provoked China to avoid U.S. crops and bought South American supplies instead.

That led to crop stockpiles growing inside North America, suppressing prices for longer than it otherwise would have.

However, after two years of this, South American supplies have been cleared out, Chinese domestic supplies are disappearing and China needs American crops.

That has prompted Chinese buyers to stampede back to U.S. suppliers, providing much of the basis for the recent rally (along with declining U.S. crop prospects.)

He doesn’t see any reason that two, two and two doesn’t still apply, even if it can be pulled out of place by geopolitical factors for a while.

It’s great to admit when you’re wrong. I admire people who do that. It’s good to look at your thinking, find a flaw and revise your operating assumptions.

It’s also good if you’ve made a wrong call, but for the right reasons with a sound analytical basis, to find your theory still makes sense and stick with it.

Analysts aren’t fortune tellers. They can’t see the future. What they can give us is their best forecast for what is most likely to happen, based upon sound analysis.

The fact that they’re willing to talk about, and actually bring up, the times they have been wrong is something we should value them for.

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