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Taking a new view of grain markets

Don’t get caught looking at any issue from just one perspective

Every now and then you come across a story or analogy that really makes you think. Even if you know an area or subject matter well, you can still learn more about it when you look at it from different angles.

This is especially true in the markets where the landscape is constantly changing because of moving economic, political and social factors. What you see will change depending on how you look at things.

A recent article from Farm Credit Canada called “To be a better problem-solver — change your perspective,” made me think about perception and how we analyze as well as understand a situation.

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In it, the author talks about flying over small counties in rural Ontario that were very well known to him. However, once up in the air, he was surprised to find out that the perspective from above was so different. He had no idea where he was even though it was an area he knew like the back of his hand. This time, though, being up in the air, it was a perspective he’d never seen before.

I’ve experienced the same thing flying over Winnipeg. Even though the IKEA that was built several years ago is a great big blue and yellow landmark, it can sometimes still be hard to tell exactly where you are until you get your bearings. Sometimes it takes longer than others but eventually you figure out where you are. In the meantime, you’ve gained some unique vantage points, especially if the plane is coming in from the north instead of the south, or the east instead of the west.

The author then goes on to say that this “may explain why nearly every farming operation he’d ever visited across Canada has an aerial photograph of their farm on the wall. The farmer is likely familiar with every square inch of their property, but a bird’s-eye view provides a very different perspective.”

I’ve also often noticed a chronological series of these pictures are on the wall showing an even bigger picture of the expansion and development of the farm over time. This gives a really good overview of how the farm business and the family have grown over the years and, maybe, where it needs to be heading next.

The article points out that “there’s a lesson to be learned from all those aerial farm photos on the wall. And that lesson is that most of us just assume that the way we see our circumstances is just the way it is. We think we’re seeing the facts and we make choices based on that. Taking a ride in that plane, however, made me realize that our perspective of how things are can be shaped by a relatively small set of experiences. In fact, it’s a bit scary to think that my view of reality is shaped by a very tiny frame of reference. What we often perceive as hard facts may be perceptions we’ve created from our very limited frame of reference.”

The article also reminds you to be aware of your blind spots and then what you can do about them. Here are four things suggested to improve your perspective:

  • Ask others for their opinions;
  • Change up your routine;
  • Take a quiet walk when you need to think; and
  • Adjust your point of view.

These points can apply to so many things in life but the last one, adjusting your point of view, can be particularly helpful when dealing with the markets.

Nowhere are differing opinions more common than in the markets. Whether it’s stock, bonds, currencies, commodities or real estate, every investor or trader will have their own point of view. So, talking about markets with colleagues from different backgrounds and experiences or looking at various short-, medium- and long-term price charts can lead to potentially improved trading results.

Your perspective of a commodity will be different looking at three-month or six-month charts compared to five-year or 10-year charts. As such, your decision-making may also be different with those varying perspectives as well.

Canola prices over 20 years.
photo: File

For example, while a short-term one-year chart (above) shows canola in a narrow range between $450 and $500 per metric ton (MT), a long-term 20 year-chart, of course, gives you a much different picture. That longer-term range is between $250 and $750 MT. While we’ve been hovering near $500 MT for the past few years, which looks like a relatively high price, we are right in the middle of the longer-term range.

Likewise, the Canadian dollar has been averaging around 75 U.S. cents over the previous few years (below). However, in the past 20 years, the Canadian dollar has been as low as 62 U.S. cents back in 2001, reached over 1.05 in 2007 and again in 2011, with an all-time high of 1.10 to the U.S. dollar in 2007.

Canadian dollar over 20 years.
photo: File

Bottom line, long-term charts are the bird’s-eye view of the markets just like an aerial photograph of your farm can give you a really good big-picture view of your overall operation. Looking at price charts over various time frames lets you change your perspective, double-check your analysis and maybe even see what the buyer or seller on the other side of the trade is seeing. This can help with your marketing decisions because you’ll see things from a different point of view. You might think you see a chart price pattern that tells you it’s a good time to sell when there isn’t really one there. It’s always good to be reminded that there are many ways to look at a problem, challenge or opportunity to help keep a fresh perspective on business, family and life.

About the author

Columnist

David Derwin is a commodity portfolio manager with PI Financial Corp. The views here are his own, presented for educational purposes, rather than as specific market advice. For a copy of the complete research study “Farming Big Data — Myths, Misperceptions & Opportunities in Agriculture Commodity Hedging” contact him at [email protected]

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