Watch Those Emotions: When Markets Get Weird, Get Calm.

Unmet expectations are the springboard for all kinds of human problems. When things don't go as expected, the likelihood of becoming irrational or having exaggerated emotions is high. What does this look like in the context of merchandising?

Anger is a common reaction when the market does something uncomfortable or unexpected - "this stupid market was supposed to do X, and it did Y." Anger leads to stubbornness - "I'm not selling/ spreading/ getting back in position until the market gets back to where it's supposed to be." This frequently ends in disappointment or disaster. 

Fear and panic also can take control when unusual things are happening. A mild example would be spreading a large position at an inverse because the spread just keeps getting worse (not that this is always a bad decision, but panic isn't a good foundation for decisions like this).  

In the most extreme cases, merchandisers get entirely out of their mind and compound the damage by getting in and out of all kinds of different trades attempting to trade out of a situation that just keeps getting worse. 

Exuberance also can be a dangerous emotion. "The market is going up forever, I'll just lift these hedges." "Old crop to  new crop is inverted, but surely that will change later. I'll just hedge my new crop purchases in old crop and wait for the spread to come back."

There isn't any magic to getting out of uncomfortable situations. The best way to minimize them is to keep merchandising simple. Use simple contracts, keep hedges in the right crop year, educate your lender and accountant on how basis trading works, and most importantly, do what the market asks.

When things get uncomfortable, don't abandon the basics- double down on them. Don't let emotions take the driver's seat.