And Now For Something Completely Different

[Sodbuster]

Patients on the wheat

Agree wheat has the potential to get over $15 again but I doubt we’ll see that until 2023. At some point wheat will have to buy acres from corn and soybeans.

[AlbertaFarmer5]

Today's newsletter:

https://klarenbachgrainreport.substack.com/p/anchoring-bias

Anchoring Bias

“I am not selling Durum until the price returns to $22 per bushel.”

It was January. I was having a conversation with a Durum grower.

The ‘fundamentals’ remained bullish, with supply levels dropping and the new Durum harvest months away.

Every man, woman, child and dog was bullish on Durum wheat prices.

“The price will return to the highs.”

It was an expectation.

Meanwhile, the parabolic move from July had experienced a correction and showed signs of exhaustion, triggering my January Sell Signal.

The price of Durum wheat was below the market high; however, the grower had anchored his price expectations to that level.

The Investopedia website provides the following anchoring definition:

“Anchoring is a cognitive bias in which the use of an arbitrary benchmark such as a purchase price or sticker price carries a disproportionately high weight in one's decision-making process; as described by Investopedia.”

The Durum grower’s anchoring bias results in holding the commodity that has lost value as they have anchored their price target to the recent high price rather than follow the technicals.

As the price continues lower, the grower is likely to experience many emotions, including complacency, anxiety, denial, panic, anger and eventually depression.

Anchoring bias occurs with all market participants, including those in the stock, commodity, and housing markets.

In the case of the Durum market, the post-CWB high price was approximately $10 per bushel in the 2014-15 crop year.

This past week, some growers were selling old crop Durum for $12.50 per bushel.

This selling price is $10 per bushel below the market peak giving back the equivalent of the 2014-15 high.

The ramifications can be expensive.

Before we chastise the grower, consider that we all experience anchoring bias in our lives.

I struggle with anchoring bias.

Do you?

[ATTACH]10854[/ATTACH]

I resemble that remark...

I have a policy against panic selling. Learned the hard way with stocks and grains. And that policy has served me well in most markets. This Summer's crash was not one of those times. I did sell some on the way down(calmly, of course...), but not nearly enough or soon enough. Much easier to be disciplined and sell on the way up. Hard on the ego to sell on the way down.

As for inflation. It definitely got ahead of itself and is taking a breather. But the inflation story is far from being over. It is in fact necessary right now(I posted an explanation a while ago). And what we just went through is probably going to look tame both in magnitude and duration. And there's little to nothing that could be done about it with monetary policy short of completely crashing all economies. I'll even stick my neck out and suggest that 2 years from this date we will blow the previous highs rate out of the water. And feel free to revisit this post and let me know how well it does or doesn't age.
I am certainly not panicking about current prices. Just deciding if it is worth the expense of holding on for better prices or cash out and move on. Not thinking that new highs are in our immediate future. But I'm willing to bet the downside risk is very low at these levels, and with the seasonality.

Wheatking, back probably early June I asked you if there was anything noteworthy in your newsletter that week regarding canola. As I was sensing at major turning point. Any chance of sending me that newsletter for posterity so I can see what you were thinking at the same time?

[wheatking16]

I resemble that remark...

I have a policy against panic selling. Learned the hard way with stocks and grains. And that policy has served me well in most markets. This Summer's crash was not one of those times. I did sell some on the way down(calmly, of course...), but not nearly enough or soon enough. Much easier to be disciplined and sell on the way up. Hard on the ego to sell on the way down.

As for inflation. It definitely got ahead of itself and is taking a breather. But the inflation story is far from being over. It is in fact necessary right now(I posted an explanation a while ago). And what we just went through is probably going to look tame both in magnitude and duration. And there's little to nothing that could be done about it with monetary policy short of completely crashing all economies. I'll even stick my neck out and suggest that 2 years from this date we will blow the previous highs rate out of the water. And feel free to revisit this post and let me know how well it does or doesn't age.
I am certainly not panicking about current prices. Just deciding if it is worth the expense of holding on for better prices or cash out and move on. Not thinking that new highs are in our immediate future. But I'm willing to bet the downside risk is very low at these levels, and with the seasonality.

Wheatking, back probably early June I asked you if there was anything noteworthy in your newsletter that week regarding canola. As I was sensing at major turning point. Any chance of sending me that newsletter for posterity so I can see what you were thinking at the same time?

Do you have a date?

[AlbertaFarmer5]

Do you have a date?

June 6. I just bumped the thread up for reference.

[wheatking16]

June 6. I just bumped the thread up for reference.

The newsletters are web and email-based (not pdf), so it is easiest to visit my website, where I sort each analysis by crop.

[AlbertaFarmer5]

The newsletters are web and email-based (not pdf), so it is easiest to visit my website, where I sort each analysis by crop.

I just checked your website,. Looks like May 30 or June 8 would line up with the period in question. If you are willing to share.

[TOM4CWB]

Fear of catastrophic production failures are fresh in many grain grower memories… the risks of spending scarce capital on markets that are unbelievably volatile… is understandable and logical.

It has been an ‘obsession’ filled spring and summer… that has Managment costs and skills… the ability to be patient and on target to carry out a specific marketing plan… with faith that the productivity of the farm we oversee… will yield favourable results.

The attention needed to make balanced decisions… to mould the risk management positions into valid marketing decisions… has been a two year process… every ‘mistake’ needs to be a lesson in being humble… and learning to be bold yet conserve capital… reducing financial risks while being satisfied with incremental gains on the market position held.

Blessings and Salutations as each person seeks to understand the volatility and fear that drives our commodity futures systems.