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Message to markets - remember to sell

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Some advice for agricultural producers, and investors – remember to sell.

Sure, it doesn't look likely that a major correction in farm commodity futures is on the horizon. If it did, crops would hardly have staged the gains they did on Wednesday, when coffee and sugar jumped more than 3%, and wheat prices set new two-year highs.

But that doesn't make a tumble impossible.

Reassuring as rallying prices may be, the farmer, and investor, should remember gains don't count until they're banked.

The C word

Certainly, there aren't many obvious sources of potential trouble, particularly now the US economy appears firmly headed for safety.

But it may only need one troublespot to put markets back on the offensive, especially if it was the size of China.

For commodities, a Chinese economic blow-up wouldn't just threaten its own demand for raw materials, including cotton and soybeans, of which the country is the top importer.

It would also shrink consumption in other nations too. China is now so important that a 1% drop in China's economic output would cut that in the rest of the world by 0.5%, according to the International Monetary Fund.

Given that China's economy grew by a mammoth 10.3% last year, a sizeable slowdown looks a matter of time (potentially a lot of it) rather than conjecture.

Expect the unexpected

And even if, as seems more likely, China keeps coming up with the goods, that doesn't mean farmers should avoid examining crop sales.

The nature of market surprises is that they are, well, surprises. Tuesday alone produced two smallish ones, with India lifting its interest rate, and the UK reporting a fall in economic growth.

Others of late have included hostilities between North and South Korea, and the twists in the eurozone sovereign debt saga.

While these have left only temporary dents in market sentiment, thus far, their big brothers might do a more permanent job.

Dealing spread

One of the lessons of the recent era of volatile farm commodity prices is that timing matters.

The, say, doubling in London wheat prices since June is important for more than the size of farmers' cheques. It is the difference between breakeven and a stonking profit.

It is unrealistic, if tempting, for producers to think they will sell everything at the top.

Indeed, a rational response to rollercoaster markets would appear to be to stagger sales somewhat. Thie publication knows of several UK farmers who, operating a "one-shot" marketing technique, sold everything for not much over £100 a tonne, a little over half current prices.

Agrimoney.com believes crop prices will appreciate yet further. But it is also aware that some the best views are to be seen from the edge of a cliff.

By Mike Verdin

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