I bristle when people say my dog Louie is scared.
This happens when we come up to another dog and little Louie keeps his distance, backs away from over-friendly and aggressive possible playmates, and always makes sure there’s an escape route behind his butt.
To me, this is just caution, prudence and a necessary precursor to playing safely with dogs that are often three, four, five — or even 10 — times his size. After all, he weighs just 12 pounds in a big-dog world.
Once Louie has assessed that a possible playmate is in fact not a murderous beast, he happily plays and pounces and scrambles about with his new buddy. That’s not cowardice, it’s caution.
I think farmers would do well in today’s roaring bull market to act like Louie.
This raging bull could continue to be a whole lot of fun, but it could also turn with frightening speed and brutal strength and that’s not something most farmers are equipped to take on, mano-a-toro.
That’s for both practical and temperamental reasons.
Practically, markets can turn very, very fast, so growers need to keep their eyes on this rally to ensure it doesn’t begin tumbling without them realizing it.
That shouldn’t be a problem for the next couple of months, but once mid-March appears and farmers begin living in their sheds, prepping equipment for seeding, the outside world can fade away. It can be easy to miss a sudden turn.
That applies to the growing season too, with a real crop to seed, watch and manage.
There are temperamental reasons to be cautious too, both on the way up and on the way down.
It gets very hard to sell while prices are rising because of that fear of missing out on higher prices, but once prices turn and begin falling, some people have great trouble selling at a price lower than they could have had days or weeks ago. They see that as being like locking in a loss and want to see prices recover and allow them to cash out where they could have before.
In every bull market, some people just can’t accept that the top is probably in. They’ll cling to every story of bad weather some place, every prediction that new highs are just over the horizon and will be here soon.
Sometimes they’re right, but when they aren’t, the losses (from the high) can be massive. Just look at what happened as markets tumbled in 2008 and 1996. Great prices evaporated in days.
How do you manage this risk?
There are so many ways that knowing and employing them isn’t a problem. If you use a broker they can do it for you. Just be willing to take their advice on how to protect the downside and leave them with instructions.
If you’re working with grain company contracts, you can do the same thing. Just ensure you’re communicating clearly so that you’re not surprised by some wrinkle in a contract or understanding that leaves you unprotected when you thought you were safe.
As everybody says, markets are driven by fear and greed. We’re now on the greed side for people with supplies, with fear on the buying side.
This all needs to be stabilized with caution. Like with my dog Louie, it’s great to be keen to play with the big dogs, but it’s best to make sure the future play buddy isn’t a wolf, the teeth aren’t coming out, and behind your butt is an escape route.
Be like Louie.