Many farmers and traders put way too much importance on economic and USDA reports. The reports themselves are usually priced into the markets with few surprises. In today's world of technology and everyone carrying a powerful computer in their back pocket it is really hard to surprise the markets both agricultural and equity.
One prime example is the monthly jobs number -- there are all kinds of expectations that are priced in. While everyone waits patiently for the announcement, the numbers typically don't meet expectations and if selling was expected buyers step in, if buying was expected sellers step in. It has been the same story forever but especially now because of the 24-hour global economy.
The jobs number on Friday, May 6, was a terrible number which traders had expected and priced into the market, only to see the markets dramatically turn around and have a monster rally. This occurrence was the rule not the exception -- traders almost always overshoot the mark and end up holding the bag of garbage finding their read on the news was right, but the markets had different ideas and did the opposite.
Agricultural reports are no different and the one we had on Tuesday, May 10, will probably not be an exception. At first look from market reactions soybeans went limit up before settling up 53, corn was up 17 to 18 cents before settling up 10 cents and wheat was little changed. The action was fast and furious and caught many off guard creating the big rally.
All markets are driven by human emotion -- especially fear and greed. Putting too much credence in any one report generally has a disastrous result for the individual. Reports and data change and overreacting to any one report usually leads to an emotional decision. More often than not decisions based on emotion made in the heat of the moment lead to financial ruin.
In life, most emotional decisions made in the heat of battle are wrong, which is why in financial decision-making, emotion has no place. Next time there is a big report due out, let the markets play out letting all of those that emotional make their mistakes while you sit back and react to their overreaction.
The moral of the story is: Following the herd will lead you to make a decision that you probably don't want to make while sitting back and logically thinking about the situation will at worst let you make a logical decision based on the facts and not emotion.
Keep those stops tight!
The views, opinions and positions expressed by the author are theirs alone and do not necessarily reflect the views, opinions or positions of Pro Farmer.