Price is always king when it comes to markets, agriculture, equity, housing and everything else. There are different ways of evaluating value but in the end it always comes back to price. Markets are determined by price not news, not weather but simple price. The value of any item is determined when a buyer and a seller meet and exchange wealth.
Price is the only factor that can make up deficiencies in any market. Although many of us follow the news and reports about the economy or about commodities, the reports are meaningless unless a buyer and a seller can have a meeting of the minds and exchange cash for goods. That is called price discovery.
In farming and agriculture, price is being determined on a daily basis through cash sales and futures markets. Supply and demand are a key component of the price discovery model, but price is still determined by what a buyer will pay versus what a seller will accept. In other words, a meeting of the minds must take place before price can be discovered.
Many of us rely too much on reports and news items feeling that they are the main effect on price, however that is false. News is one component in the determination of price, which is why a bearish report can actually result in prices rising and a bullish report can lead to prices falling. Market expectations are the key factor in markets discovering price.
The emotions of fear and greed can only drive price in the short-term; long-term market values are determined by the markets. Today's panic selling can be met with tomorrow's panic buying. Too many people get caught up in the short-term -- watching markets tick by tick which almost always leads to failure. Decisions made based on one report are usually wrong, bringing us back to price is king.
Unlike other markets, farmers have a better chance in protecting price by hedging their crops or livestock and locking in a minimum price, allowing them to stay away from general panic that always shows up in markets. Protecting production costs will allow farmers to remain calm in all markets because they are protecting their investment and guarantying a minimum price they will accept.
There are a couple of old sayings that apply to markets: "High prices cure high prices" and "low prices cure low prices." These statements are true in all commodities. When price is too high, buyers will step away at all levels knowing they either can't afford the high price or that they can't resell it for a profit. When price is too low, buyers will step in feeling that there is value and profits can be achieved.
No matter what you are producing it's always about money and profit. Protecting your money will help you keep a clear head, keeping you away from an emotional decision. Success comes to those who can patiently wait to make an informed decision.
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."