Watch Charts During Volatile Markets

This spring, the news was strongly bearish when the administration announced tariffs on most of the world, including most of our major ag export markets. The U.S. stock market, energy prices, and the grain markets were collapsing sharply. One late afternoon, a worried farmer called me. “Should I sell it all now?” he asked. “I am watching TV all day and — wow — are they bearish!” He told me everything he was reading on the internet was so negative. “I can’t stand it,” he said. 

His call, and his reactions, reminded me of the Carter grain embargo in January 1980. The president embargoed wheat sales to the then Soviet Union as punishment for invading Afghanistan. 

Chart illustration above: The December 1980 corn chart. Before the grain embargo was announced, December corn futures were trading at just over $3.15. Prices closed limit down on Jan. 9, 1980, after the embargo announcement, and hit $3 on Jan. 10. From there, prices rallied back into late February before hitting the late March low at $2.90. The farmers who did not panic and held off making new crop sales were well rewarded. The December 1980 corn futures rallied to over $3.90 per bushel in November 1980.  

Over the last 40 years, I have learned that when a farmer calls and is emotional and ready to panic, I need to listen. I ask a few questions and try to get the specifics on his farm. I then keep listening. How many acres does he farm? Does he have crop insurance, and if so, at what policy level? Is he holding a lot of cash grain? What percent of his new crop has he sold ahead? 

This farmer was close to being sold out of his cash grain and had a small part of his new crop sold ahead. I told him he was in better shape than most farmers. Also, because he had his Revenue Protection (RP) crop insurance policy, his new-crop production was at limited risk. 

He was still very frustrated and wanted to do something. I told him that long-term selling ahead below his cost of production is never a good idea. He mentioned that this reminded him of the grain embargo, during which ag prices and profits went lower for the next six years. I pointed out that even after the embargo was announced, we still had higher grain prices and more profitable selling opportunities six months later.

One suggestion I mentioned was to buy some put options. If he were nervous, I said, then maybe buying some put options would allow him to get some sleep.  

Chart illustration below: This is the November 1980 soybean chart. November soybean futures were trading above $7.30 before the grain embargo was announced. Prices closed limit down on Jan. 9, 1980, after the embargo announcement. Prices rallied back into February before hitting the April low. The farmers who did not panic and held off on making new crop sales were well rewarded. The November 1980 soybean futures rallied to over $9.20 per bushel in November 1980. 

Learning From 1980

My final bit of advice was not what he expected: I told him to shut off his TV (or to at least change the channel, and stop watching financial news all day). I told him his time was better spent charting, and then to focus on what he could do to ramp up production and keep track of what his crop was worth every day — and to set income goals. 

So what about that 1980 grain embargo? I lived through it, and this year, I went back to review what worked then — and what could work today. 

When I am working through volatile markets that drop below my subscribers’ cost of production, I admit it can create a lot of worry, anxiety, and some sleepless nights. Many, many farmers make decisions based on my recommendations, and I take that very seriously. What if I am wrong? How many farms will lose money — or worse? I feel tremendous pressure. 

But, I have learned to use the pressure to think even more, and to try harder to find solutions. In 1980, these three approaches helped me make better — and calmer — decisions. I think using them again 45 years later is a good idea. 

1. Use charts to stay calm.

Look at the long-term Chicago Board of Trade (CBOT) continuation charts. You can get a perspective of where prices are compared with the past. You can also highlight which weeks the corn, soybean, and wheat markets put in major highs or lows for the last three years. By looking at the long-term weekly and monthly continuation charts, you take a lot of the day-to-day noise out of the markets. You see how prices can plummet, but often rebound within three to six months. 

2. Don’t close your eyes to prices.

Check on your cash bids, and check on new crop prices. See if you can make money storing your new crop, or does it pay to just get some sold ahead of harvest? When you do make a sale, make it small. Making a series of 10% sales results in a better average selling price — and reduces stress. 

I know many farmers use grain accounting software to monitor their crop values. Even if you do, take out a pencil and write down grain prices, and the total value of your cash and new crop grain, every week. It sounds like hocus pocus, but writing down the numbers helps your brain feel like you are in control of something — which you are. 

3. Reach out to your people.

Talk with farm partners, and neighbors and friends you trust. When I meet with my team, I am always amazed at the great ideas the young brokers come up with. Talking through strategies and alternatives not only helps me make better decisions but it also reduces stress. If you were scared and frustrated in April, you were not the only one.

Note: The risk of loss in trading futures and/or options is substantial, and each investor and/or trader must consider whether this is a suitable investment. Past performance — whether actual or indicated by simulated historical tests of strategies — is not indicative of future results. Trading advice reflects good-faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice given will result in profitable trades.