In 2013, a group of people participating in a study were shown charts presenting 90 days of wheat prices. The group was asked to predict the price in 10 days. Half of the group was told that they were “bakers” who would profit if the price of wheat fell, while the other half were told that they were “farmers” who would make money if the price of wheat rose. Apart from this role classification, all information presented to the participants was the same. The results of the study have a lot to say about unconscious human behaviour.
Of the participants assigned to be a farmer, 63% predicted higher-than-average prices. Among those assigned to be a baker, nearly 62% predicted lower-than-average prices. Each group, both farmers and bakers, were more likely to make predictions favourable to their role. In other words, risks were systematically underestimated, while rewards were overestimated. The term that the researchers used to describe the behaviour: wishful thinking.
Most of us are familiar with the phrase, but few readily admit how these sorts of biases may affect our own behaviour. A feed mill may lock in a certain price via contract believing it to be beneficial in the long term against rising prices. A distributor may be tempted to continue building stock after the same strategy worked amidst rising prices in the months that passed. After many years in the industry, it is natural that we rely on intuition to make these kinds of decisions each day. But are they free of bias? According to researchers: no.
So what are we to do? Our intuition, while perhaps based on many years of experience, must be coupled with good data. Only then can we challenge our assumptions and those of our team. Data is powerful, and it can be what differentiates us from those acting on feelings alone. Leave the wishful thinking to your competitors, and arm yourself with data.
The most significant market trends identified by Glowlit in the last week:
US DDGS Price Almost Equal to Corn
Spot prices of DDGS are stabilizing as the supply fundamentals for soymeal become clearer ahead of the summer months. We’re expecting more soy, and lower prices. Concerns over drought in the Western portion of the United States are leading traders to supply farms that usually don’t supplement their feed with DDGS. The impending droughts are expected to decrease reliance on grazing, and increase the reliance on feed. Interestingly, when we look at the price of DDGS compared to corn in the US they appear rather similar – an unexpected trend given the continuously increasing prices of amino acids.
MBM Demand Unclear During Month of Ramadan
With the decrease in the price of soy, we are also seeing a decrease in meat and bone meal, ruminant prices. Overall trading has decreased throughout the Middle East and Asia due to a decrease in feed demand from China and the start of the month-long Ramadan holiday. Experts remain divided over the impact of African Swine Fever in China, with some claiming that the impact is minimal while others claim something far more significant. Early May should bring clarity on the status of demand at the end of the supply chain, as buyers complete orders for the next purchasing cycle following Ramadan.