Melvin Brees
Farm Management Specialist
University of Missouri Extension




Decisive Marketing

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January 28, 2000

How Long Will It Last?

After more than a year of very low grain prices, the recent sharp uptrend in prices is welcome. This uptrend has greatly improved pricing opportunities when compared to just a few weeks ago. This is even occurring at the time of year prices are often to falling to their "February lows." When prices begin to rally this way, no one wants to miss out--especially after all of the low prices. But you don't want to sell too quickly either! This situation always raises questions like--How high will they go? How long will it last?

No one really knows the answer to these questions and there is a wide range of opinions among market analysts. Some are beginning to believe that "low prices are starting to cure low prices." Demand is strong and supplies, while still large, are not as burdensome as many feared earlier. Other analysts point out that supplies are large, South American production can still be large and a large U.S. acreage will be planted again. Bull or bear, all agree that the major factor behind the price increase is weather. Dry conditions in South America along with dry conditions in the U.S. that could extend into the growing season have raised concerns about crop sizes. As long as it stays dry, prices may continue to strengthen. However, weather markets are very volatile and can change quickly--all it often takes is rain in the forecast!

With this kind of uncertainty and risk, how do you decide when to capture price gains from the current price rally? This is a challenge--especially when you have no idea of how long it will last. One strategy is to start making sales and then "scale up" sales by making additional sales as (if) prices continue higher. This usually doesn't capture the "high," which is an unreasonable goal anyway, but it allows you to continue to raise your average as long as prices increase.

Another strategy is to use the "trailing stop" method. Since no one knows how high prices will go or how long the rally will last, the idea of this strategy is to follow the market up until it breaks. You set your sales target below the current price. If prices go up, you continue to raise your sales target price, keeping it below the current price. This continues until prices break and trigger your sales target. You won't get the "high" because you are using a break in prices to trigger your sale, but the strategy allows you to follow or "trail" the market up until it breaks.

At what prices do you set sales goals or price targets? This too is usually a difficult decision. One method is to use futures price resistance or support levels determined by technical analysis. Many analysts identify these in their newsletters. It is a good idea to avoid round numbers (such as $2.50, $5.50, etc.) because they are popular targets and the markets often fall just short of these "nice" round numbers.

How long will the rally last? No one really knows since weather is difficult to predict and it is a major factor in the rally. Due to the risk and uncertainty involved, it is important to have a strategy that allows you to make the most of the opportunity.-- Melvin

University of Missouri ExtensionDecisive Marketing - January 28, 2000 -- Revised: April 20, 2004