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Grain Marketing As a Trend Follower

During a grain marketing discussion, a grain trader told me, “Farmers sell their grain for two reasons: Number 1: Cash Flow and Number 2: Bin Space.

This strategy works well in rising markets where the longer we hold, the more we receive for our product. 

But the market does not always rise.

What if there is a more effective strategy to market your grain?

A timeless strategy proven to work across all asset classes.

That strategy is called Trend Following.

As defined on Wikipedia, Trend Following is a trading strategy according to which one should buy an asset when its price trend goes up and sell when its trend goes down, expecting price movements to continue.

How do we identify an uptrend?

Prices trend in three ways:

 

1) Uptrends are characterized by rising prices with higher highs and higher lows.

2) Downtrends are marked by declining prices displayed as lower highs and lower lows.

3) Sideways consolidation with no clear direction of an uptrend or downtrend.

 

During uptrends, delaying grain marketing decisions until cash flow and bin space requirements dictate sales can be effective.

The farmer with unsold grain inventory is considered to have a Long position which is rising in value as the price trends upwards.

We call this Letting our Winners Run.

However, all trends come to an, and the price rise slows down or a downtrend begins.

Once the price downtrend begins, our unsold grain begins to lose value giving back gains.

As the downtrend progresses, the limitations of the sell for cash-flow or bin space grain marketing strategy become evident.

Instead, once a downtrend begins, the most effective strategy is to sell grain and exit Long positions.

We want to do this ASAP to avoid the lower prices of the downtrend.

We want to Cut Our Losers Short.

Cutting Our Losers Short preserves the value of our grain, realizing greater revenue and profit per acre. 

An extra 5 or 10 percent in the sale price exponentially affects profit per acre.

I encourage you to enter different price points into your cost of production software to develop a sense of the significance of higher or lower prices.

Let Our Winners Run, Cut Our Losers Short

We publish two newsletters, the Klarenbach Grain Report and the Klarenbach Special Crops Report, focusing on price and not market noise.

I enjoy discussing the markets and can be reached at 306-463-8607 or trent.klarenbach@klarenbach.ca

Trent Klarenbach, BSA AgEc

Trent Klarenbach