Going Green

Thursday, January 10, 2008

Marketing Decisions for Agriculture

There are many things that drive marketing decisions in agriculture. Deciding when and where to sell our produce can be determined by the banker, the CPA, by the mere fact that the crop is harvested – or ready as in the case of livestock, or by habit.

Through the years a number of tools have become available to aid in reducing some of the risk associated with marketing our agricultural produce. There is forward contracting, hedging on the futures market and options contracts for example. Each of these tools is designed to give the producer a level of comfort on what the price will be for their products when they have reached a marketable stage.

It seems though, that many farmers and ranchers thrive on risk. It’s probably part of the same mentality that causes them to risk everything each year to plant a crop, or buy cattle, that are subject to the weather, disease, pests, and the market. In fact it has been said that farmers and ranchers aren’t interested in going to Lost Wages – I mean Las Vegas – because the thrill just isn’t there. The stakes are too low.

While the futures market is designed to reduce risk, it can also be a temptation to believe that one knows more about the direction prices are heading than other people do. Therefore, what was designed as a tool to offset risk becomes a method of increasing risk through speculation on the direction that the market may be heading. This is something that most people should avoid because the collective wisdom of the marketplace usually outguesses the individual. In other words, the “big guns” on Wall Street are making their money off of somebody and it is usually the guy that thinks he knows more than they do.

So, what I’m trying to say is that the commodity futures markets are designed to be a tool to mitigate market risk if used properly, but can be extremely hazardous to an individual’s economic health if used improperly. Actually, most farmers and ranchers have a wisdom about the markets that is part of what makes them successful. The rest of us should probably listen to them when it comes to our ventures into the stock market.

Stock Market Wisdom

Making sense of the stock market
Is a challenge to most of us.
It seems the boys on Wall Street
Are constantly stirring up a fuss

Whenever they want to see a stock move.
The sad thing is we are all looking for a win
So we put our money down
Although our chance is thin.

And we listen to the mavens
From the big stock brokerage firms
Tell us where to put our dollars
That we've worked so hard to earn.

Just like a flock of sheep
We go rushing where they say
Hoping we will make a killing
On the stock market today.

But Wall Street just keeps laughing
As we put our savings down
'Cause they went short as we went long
And the profit went to town.

I wish I'd listened to the rancher
Whose wisdom now makes sense;
Keep your money in the bank
And your stock behind a fence.

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