How To Think Like A Trader. Trading Grain 101

One main goal for Crop-Side Marketing is to get farmers thinking like traders. Going into the New Year, we will be discussing how to take an average farm and turn it into a trading portfolio. Now some of you may be thinking that this is crazy. Why would a farmer need to think like a trader? Well, one main reason is that each farmer has major risk exposure to the grain markets. A lot of time farmers do not see the risk of their physical grain in a dollar amount. Prices go up and down, but not a lot of thought goes into how much they are losing/making when the price moves a certain way. Where as if you had a trading account, this is in your face and very real. When you start to see the money in your account rise or fall, you get the reality check.

Now at Crop-Side, we want the farmer to think that they hold a long grain portfolio. And every time the price rallies, we need to take profits. To get that reality check for their physical grain exposure, our website allows farmers to see how profitable they are at specific price levels. Once you can see an actual dollar amount, then you can start to make better decisions when to sell grain (take profits). If you start to pinpoint areas where you would take profits, then it will allow to have better average prices.

Now once you understand how your trading portfolio (farm) is designed, you need to figure out how to execute the trades.

1. Traders don’t always sell everything all at once. They sell a little bit and then see how the market reacts. If the market reacts a certain way after you sell, then you can create new logic to make your next trade.
2. Watch the price action on a chart. By visualizing the actual price movements, you are able to get a better understanding what others are watching as well.
3. Watch other participants. You can see other traders’ interest by watching the volume that was traded. If there were a lot of contracts that traded at one particular price, then there was a lot of interest at that price level. Therefore it must be important. You may then consider taking some profit at that price level.

These were three basic trading mentalities of many. In the next couple weeks we will have more details on how to treat your farm like a trading portfolio. Until next time, Crop side Marketing.