THE CHALLENGES OF BULLISH AND BEARISH MARKETS
by Heather Moffatt, Grain Risk Management Advisor, Agricultural Marketing First

At the beginning of 2005, the grain market looked at some of the biggest carryout stocks seen in the last 10 years. Reductions in soybean carryout from a huge 460 million bushels in December of 2004 to 320 million bushels in the recent June report show a drop in the U.S. stocks, but still maintain a comfortable level of supply. Corn carryout levels in June are still projected at 2.215 billion bushels and so far USDA estimates for the 05/06 corn carryout are estimated at 2.540! A constant accumulation of "what ifs" surround new crop bean production at this time, and questionable weather has propelled prices higher. In this article I want to explore the bullish phenomena and its implications. The beginning of any bull market starts with supply concerns. A lot of these concerns end up being unsubstantiated. The market rallies on uncertainty but falls back when actual production numbers are tallied. It's a reoccurring phenomenon and one grain marketers must manage to their advantage. How do we decide at what price level to sell our crop? For most of us it's a mix of fundamental information (U.S. and world stocks and usage), technical indicators, statistical data such as history (price percentage graphs) and profit margin. It has become very important to keep pricing options and our minds open to all the "what ifs". History helps with decision making, but growing South American production, new pests and diseases, and continued infusion of "fund" money may be changing the landscape somewhat. What history does do, is help us set targets that can be managed. Bull markets are exciting and dangerous. They create excellent opportunities but need to be managed carefully.

The first step is remove emotion and follow these suggestions:
1. Carefully assess the market situation YOURSELF. There are going to be hundreds of opinions and ideas as to market direction. Take time to personally sort this information out using a combination of reliable resources. Find a research analyst who has credibility and states facts from which you can draw your own conclusions. Be very cautious of people who emphatically state they know market direction in advance. No one knows this.
2. Use discipline to create a plan. Be realistic.
3. Use history as a guide, but remember, world grain dynamics have changed considerably over the last five years.
4. Be able to change with the market. This year is a perfect example of a changing landscape.
5. Any time you market your crop in the top 30% of a commodity's historical trading range, be satisfied.
6. A rallying market can be short and violent.
7. Look ahead a year. We are often presented with some excellent opportunities to start pricing grain for harvest a year away.
8. You are not going to hit the high, and you will not know when it's all over.
9. You are not going to hit the high.
10. You are not going to hit the high.

The last three points are not repeated in error. This is the hardest thing for most of us to reckon with. In our fear of selling too soon, we often freeze at the top, only to stop frozen in horror as the market retreats. The best way to get over our fear of selling is to set realistic targets and use out of the money call options to cover the unforeseen. Be realistic, maintain focus and stick to your plans. Over the long run this type of focus will create the most successful marketing plan for you. .