Managing risk in today's grain markets

Managing risk in today's grain markets

One of the biggest problems I see when traveling around the country talking to those in the ag business is that most are trying to "predict market direction" rather than being focused on "managing market risk." I've often said if you are good enough to predict market direction, then stop farming and become a professional trader. It would be a much easier and less labor intensive gig.

But if you are like the rest of us and struggle with predicting market direction, then you need to focus your attention more on managing market risk. Remember, these are birds of two completely different colors. I completely understand that everyone is obsessed with trying to outperform the market, but this mentality often makes people myopically focused on the potential rewards, while neglecting the added risk that is about to steamroll them over the next hill. In other words, while most remain focused exclusively on making a sale at a higher price, we often lose sight of the dangers we have ridden into while looking towards the sun.

When we are only looking to maximize the return side of our equation, we often become unaware of the extra risks we are taking on, while chasing that return. I believe far too many producers right now are looking to bail themselves out by outperforming the markets. Again, wrongly focused on "reward" and not 100% focused on "risk." I urge you to be extremely cautious! The best and most consistent marketers and investors always look to control risk first; return is simply a secondary byproduct.  

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TAGS: Soybeans Corn
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