1. Every market position is important in the short-term. If it's a good trade long-term but not short-term, get out until short-term is long-term.
   
2. Without margin money, there is no such thing as L-T trade.
   
3. Every trade has lost money at some point in the trade (but not too much). Expect some losses, but get out if they exceed your expectations.
   
4. Most big loser trades are winners at some point. Usually they have almost as many up days as down days. But down days have two to three times the move of up days. That's the sign of a losing trade. If you are in a situation like this for one week, get out. (Hint: $500 loss or more)
   
5. If you get in a trade and can't sleep or have unusual dreams, GET OUT.
   
6. Stay in positions as though you are protecting equity. You can't get out, or you'll lose equity. Ask yourself, "If I were protecting equity for today and tomorrow, what side of the market would I be on?" THEN GET ON THAT SIDE!
   
7. Never risk more than 5% of your equity on one trade. NEVER JEOPARDIZE YOUR FARMING OPERATION FOR A TRADE. NEVER! The market is there every day.
   
8. Treat every trade as both a potential loser and a potential winner. Know how to tell the difference when you're in it. (HINT: Winners make more money every week. Losers lose more every week.)
   
9. If you're losing money consistently for six months, stop trading. Try to find out why you lose. Then try something different. (Pick up a technical analysis or trading psychology book.)
   
10. Think positive. Have confidence in yourself. If you don't feel good about what you're doing, change it immediately.
    
11. Never make a trade on a market that just completed a major move if the only reason for making the trade is that you just saw a major move and missed it. (Warning—Those most susceptible to this are the ones who did expect the move but made the trade earlier.)
    
12. Anybody can catch a "BIG" winner on occasion. However, if you don't have a strategy to reproduce your results, you will give all the winnings back to the marketplace.

Selecting a Market Advisory Firm

In the past, I have had the chance to attend various marketing seminars and listen to a wide range of ideas about grain marketing and/or commodity trading.  One particular individual made fun of anyone who stored grain - ever.  Obviously, sometimes storage is a good thing (for example, 1997 dry beans, 1994 corn/beans, 1993 scabby wheat with severe discounts) and sometimes storage is a bad idea.  Others have said farmers always should sell cash grain at harvest and buy options.  But blanket strategies to use every year such as these usually don't work every year.  Each year you need to take what the market offers you and that varies from year to year. 

I recently attended a couple seminars, and it occurred to me it would be difficult for a producer to select a market advisory firm.  

Sometimes it's the most important decision a farmer will make.  Here are some guidelines I think are important when selecting an advisory service.

• Ask for references.  You shouldn't have to be bashful about asking for references from the firm you will be trusting for financial advice.  You generally should ask for references who live in your area.  If you know someone who is/has been working with that firm, ask them about their impressions of the service.  Generally, I'd avoid any firm that requires customers to sign a confidentiality statement.

• Get someone who understands your local basis and your local markets. If your advisory firm doesn't know the seasonality of your market basis patterns, storage costs, and local shipping/handling facilities, it's going to be difficult for them to give you good marketing advice.  Generally, your adviser also should know what futures spreads are and why they're important in formulating your marketing plan.  (Hint: Spreads tell you whether storage or paper ownership is the best risk management alternative from year to year.)

• Never do business with someone who claims they know with certainty what a futures market will do. No one knows for certain.  At best, advisory firms give educated, calculated guesses about the market, with risks taken weighed against potential rewards.  If your advisory is 55 to 60 percent accurate consistently on futures market price forecasts, they're probably doing a good job for you.  

• Beware of any broker/adviser who doesn't understand risk. To be successful, you must always know your risk in a market position, even if you are a speculator.  Always know and understand the risk.   If you understand it and your broker doesn't, get a different broker.  Or at least, do not listen to anything this broker/analyst says about the market - his lack of understanding about market risks make you more vulnerable to significant losses.

• Never do business with someone who wants to "disguise" or hide speculating. If your broker can't explain to you when you are speculating, either he doesn't understand what speculating is, or he doesn't understand your market position.  Either way, you've got a potential problem.  

• If you want to speculate in commodities, fine, but don't fool yourself (or let your broker deceive you) by not admitting what you're doing.  Especially beware of the broker who talks  about "investing" in the commodity futures or options - basically he's talking about speculating.

• Beware of nonrefundable fees.  If the service believed in its market advise or approach, they should have a "satisfaction guaranteed" clause that allows you to cancel at any time after the sale and receive a refund for unused services.

• Beware of customer confidentiality agreements.  Every brokerage firm is licensed with the CFTC (Commodity Futures Trading Commission) and a member of the NFA (National Futures Association) and they are required to honor customer confidentiality rules.  Therefore, it is my understanding the only purpose of a "customer confidentiality agreement" is to keep you from telling about your experience with your advisory service.  If they are a reputable firm, what would they have to hide about their advice?  An interesting angle on this is that a customer cannot give any bad reference after signing one.  You have to conclude that any service would require signing a customer confidentiality agreement must be hiding something.

• Ask questions about how the advisory service will help you market its grain (some good answers would include using basis, spreads, seasonality, or risk management to accomplish some goal).  If they tell you they can pick market tops and bottoms, beware.  If they tell you they know what futures markets are going to do, beware.  They should have an idea what they will do for you and how they will do it.   If not, maybe they don't really know how to help you.

What To Expect From a Marketing Firm

• Honesty.  If your broker/analyst isn't honest (both with himself and with you), you probably don't want him/her as your broker.  Remember, no one knows with certainty what a market will do.  If your firm claims they do, you are both in trouble.  In fact, we believe there are two types of traders who trade markets, those who don't know what the markets will do and those who don't know they don't know what the market will do.  In other words, no one knows what the market will do.   Anyone who thinks they do is just mistaken and wrong.  Generally, the people who make the best market decisions (and therefore the most money) are those who understand market uncertainty and deal with it - generally by understanding both their risk and potential reward.  Those that do the worst in marketing are those who foolishly convince themselves they know for certain what will happen.  They take foolish risks and can't make adjustments when they are wrong.

• Expect some mistakes.  No one is perfect, and no advisory firm is perfect.  If anyone could pick the market top with any certainly, wouldn't the market game be easy?  Picking both tops and bottoms is not realistic as a marketing goal.   Instead, have a goal of steady, attainable success (like getting consistently in the top one half of the market).

• Beware of "get rich quick" schemes.  I've never seen this work for virtually any businessman, but especially for futures hedgers/speculators.   The successful traders/hedgers are those who work hard at it and are very precise in their market analysis and actions.  In a side note, have you ever met anyone who "got rich quick" and kept the money?  Generally, when someone does acquire money by a onetime bolt of sheer luck, it doesn't take long for the money to disappear.   Most wealth is earned - especially the wealth that lasts.  Some wealth is made by ideas or inventions, some by doing something better than anyone else, and some by sheer hard work.  but it's usually earned.  And wealth that has been earned is usually kept too, not blown quickly.

• Look for a marketing firm interested in a long term relationship.   For hedging, look for a firm interested in your long term success, in other words, your entire farming career, not someone looking for excitement.  Usually excitement in markets means taking stupid risks (usually while trying to pick a market top).  Good marketers (or even speculators) aren't interested in taking stupid risks.  Long tern success usually is less exciting than short term success, but always is more satisfying.
  
  © Copyright 1997, Progressive Ag Marketing Inc..   All rights reserved.

The above are opinions of Progressive Ag and are not supported by specific research. The intent is to help you market cash grain more effectively, as the rules are intended for cash sales decisions. The underlying basis is not scientific law. As always, future trading implies risk, and there are no guarantees that using these rules will produce profits.

1-800-450-1404 or
701-277-9210
FAX: 701-277-9248
Email:randy@progressiveag.com