Marketing

[John_Walter]

In his new column today (full story) Roy Smith looks at whether the idea of trading on seasonal patterns still holds water. At  a recent farmer meeting, he was questioned as to whether his seasonal strategies are still relevant in an era where "one day a price move can be greater than the range of average prices over a whole year."

"My response was that even with the huge swings in recent years, prices follow relatively reliable patterns through the year and from one year to the next," Roy writes.

He lists three ways he's analyzed his seasonal pattern strategy, the third being to trade (speculatively) with his own money. ("Not for the faint-hearted.") In 97 trades over a long period, he's seen "generally profitable" results.

I like this idea, of putting your money where your mouth is....  Thoughts?  

John

[Pupdaddy]

I like the idea of market analysts having to disclose their positions. Look at the people who contribute on "Nightly Business Report". They all have to state whether they are invested in any of the things they recommend when they are invited to share their thoughts. You might even see a whole lot less speculation in the market, and a lot more hedging....which for the farmer might not be such a bad thing.

[kraft-t]

John, I think you should have a caveat to readers of the market page that they are reading opinions and not recommendations. They shouldn't base their marketing decisions on blather on a website.

Yes I agree that Roy is more credible than most but even he would admit that you shouldn't bet the farm on  his studied opinion.

[giolucas]

I think it is beneficial when an analyst puts their money and really digs into the market . It is great to see and feel the reaction of the markets and I think it gives credibility. I have seen analyst change their opinions on a dime when the market changes and they completely change the factors to fit the new direction of the market. That use to make me so mad. But over the years I have learned that all of these experts might have great research, more money and better contacts. But in the end the market still makes them look like jackasses.

[hardnox604008]

Even when seasonals were pretty regular there were years that were almost perfectly counter seasonal. So they are probabalistic in nature, not expected as any form of certainty.

I think there is some evolution of seasonality in recent years and I think that will evolve with time, too.

Maybe it won't show up this year but for most of the last half dozen years USDA has reliably come in with a low planting intentions number that has produced a nice rally to buy acres.

I'll guarantee you, someday it won't but I'm guessing it will again this year.

[Canuck_2]

John; while it is true if I buy or sell contracts on CBoT I have put my money wher my mouth is I think we forget that anyone growing a crop is 'putting his money where his mouth is'.

When you decide to grow a crop you have decided you will make a $ or at least break even for the most part. Seldom do we decide to grow something because we want to lose $.

So we have invested in the market when we plant without investing in CBoT.

Sometimes that has been a problem for some farmers they forget that they are marketing a commodity and playing the futures even if they are not invested in CBoT.

[Jim Meade / Iowa City]

As I understand it, Roy calculates where history indicates the seasonal moves should be and makes automatic trades at those times, regardless of price.  It is interesting to see this done but I don't put a lot of stock in it.  It could be done on paper as well as with money and still be as relevant to me.  It's just a test of a theory.

The huge traders are reported to have automated systems that are traded by computer based on a number of factors.  Except for the fact that the funds use a lot of factors instead of a few, they are doing the same thing.

You know the airplane Spirit of St. Louis that Lindbergh flew the Atlantic in?  You couldn't see ahead of it.  It had no windshield.  It had side windows and the only way to look ahead was through a periscope. 

" While locating fuel tanks at the front reduced the risk of the pilot's being crushed to death in the event of a crash, this design decision also meant that there could be no front windshield, and that forward visibility would be limited to side windows only. A periscope was installed to provide a forward view, as a precaution against hitting ship masts, trees, or structures while flying at low altitude; however, it is unclear whether the periscope was used during the flight."

I think a lot of marketing feels about like LIndbergh alone, at night, hungry and sleepy and not able to see ahead, and knowing no one else has yet been successful at what he is trying to do. 

Obviously, many think you can navigate without seeing ahead, but my problem with all this rear-view-mirror marketing is that as things change you don't see them coming.  Look at the marks on our door way.  When I was 3 years old it was about 3 ft high.  It went up until I was about 18 when I was 6 ft high.  If all you had to go by was my doorway, you'd think I'd be about 80 ft high by now.

How does looking back help you anticipate La Nina,  ethanol as a market force, with hybridization,  the value of the dollar and so forth?

I have a good deal of respect for Roy, especially his soybean analysis, and I pay my money for his newsletter and I recommend it.  Now, speaking of analysts in general, I get the feeling they think they have the periscope in the Spirit of St. Louis and are the only ones who can tell where we are going.  If you ever watch big tail wheel airplanes taxi, you'll notice the S-turn so the pilot can see the taxi-way first one one side, then the other.  Only whenthe plane flies and levels off can the pilot see out of the window.  At the best we marketers are trying to taxi using S-turns.

That's the end of the flying lesson for today.  I wish I had the periscope for my marketing plan. 

[kraft-t]

Excellent analogy! Deserves at least 3 Kudos!

[JohnQ]

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kraft-t wrote:

Excellent analogy! Deserves at least 3 Kudos!

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Agreed Krafty, agreed. I've been hanging around this joint for well over a decade now (actively posting at times, at least one different handle over the years, etc. ) and I have to say that's one of the best posts I've seen. Surely your best post Jim! Keep it up.

[Roy_Smith]

To stretch the aviation analogy further, would the Spirit of St Louis have been better off with or without the side windows? My seasonal stuff is sort of like the side windows. They don't allow me to see ahead but they do give a hint of what usually happens. My theory is that having some guidelines is better than flying blind. Some economists claim they can prove the seasonals do not exist. To meet statistical proof, an event has to be 95% reliable. Nothing in marketing is that certain. One manager of a large consulting firm told me several years ago that his recommendations started working much better when he combines his technical analysis with my seasonals. We all have marketing and management tricks that work for us. Once in a while I get on the wrong side of the market. Most often it is because I waited too long to sell.  My testing with the spec account has taught me to deal with those glitches and move on.

Thanks for your comments Jim. I don't mind if people disagree with me as long as they give my ideas a fair test. Marketing is tough. I hope that my research makes it a little less frustrating fo some farmers....Soyroy