Kim Anderson is an expert wheat market analyst, so highly regarded for his views on U.S. hard red winter wheat that the Kansas City Board of Trade carries his analysis and recommendations on its website.
The Oklahoma State University agricultural economist provides detailed analyses of lines of support and resistance in wheat prices, makes recommendations on price trigger points and offers the sort of meticulous dissection of market factors that active traders and hedgers love.
But from years of following his comments, I’ve noticed he often returns to two linked themes: you can’t beat the market and farmers should stick to production and leave active marketing to the giants of agribusiness.
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I’ve always found it jarring to go through Anderson’s insightful analysis and predictions and then find him essentially recommending that farmers forget it all and stick to farming.
So I called him up and had a chat about this divergence between what he spends so much time doing and what he thinks farmers, to whom he is committed, should be paying attention to.
“The farmers who listen to what I say, say to me, ‘what do we need you for?’ ” said a chuckling Anderson, who does not believe anyone can predict prices.
“I believe a good, simple, mechanical strategy is to sell your product and concentrate on areas that you can manage because you cannot influence price.”
Anderson believes in the efficient market theory, a view of markets that says price action is based on information hitting the market and being quickly disseminated. He believes today’s prices, both nearby and far out in the future, are based on the mass of market players assessing information to the best of their ability.
This is the prevalent market paradigm of those who believe supply and demand factors almost entirely dominate prices, but there are other schools of market analysis that disagree with this belief.
Believers in this theory hold that no one is likely to have an accurate prediction of market prices that diverges much from present forward prices except by sheer luck. While it is possible to marginally beat the market in the short term, Anderson said, it’s something farmers can’t do.
“The way to make money marketing is to get the information before anybody else and to analyze it better than the market as a whole, and small players can’t do that.”
Who can do that? Anderson thinks it’s the giant grain companies that own millions of bushels of grain and oilseeds, that have operations in many countries and that spend millions of dollars a year on information systems. They might be able to get a jump of a day or two on small changes in supply and demand factors that can bring them a penny or two a bushel.
However, the market will always move ahead of the farmer.
Anderson has studied farm marketing since the mid-1980s, keeping detailed price records and studying various marketing strategies, and has come to one conclusion repeatedly: selling the entire crop at harvest makes the most money.
He points out that this conclusion is only for southern Oklahoma. Other areas, such as Western Canada or even northern Oklahoma, might have different basis patterns that could make a storage hedge work.
However, he usually recommends that farmers sell one-third of their crop at harvest, which is early summer in his area, one-third two months later and one-third in the late fall. I pushed him on why that’s his recommendation if he believes selling it all as soon as possible makes the most sense, and he admitted what I suspected was the basis of the strategy.
“Psychologically, you’re always right,” he said, chuckling again.
“If you sell one-third at harvest and prices go up, you’ve got two-thirds left to sell. If you sell one-third at harvest and prices go down, you sold some when prices were better. You’re always right.”
In other words, it’s a strategy to force grain out of farmers’ hands, get money into their hands and get their eyes off the markets and back onto their fields, machinery and financial arrangements.
“You get them to feel comfortable with how they market their product and then they’re going to make better decisions on managing costs and yields because they’re not worried about what the market’s going to do to them. It’s all psychological.”
So, if you want excellent, detailed, sophisticated analysis of the hard red winter wheat market, check out his weekly comments at www.kcbt.com. But if you want his real advice, don’t think so much about this kind of stuff and stick to what you do best: growing high yielding, top quality crops.
That’s what’s going to make or break your farm.
