| By
Thomas Brown
Deland-
Rich Posson makes his livng from predicting business cycles.
Most commodity prices already are at or near their low points for
cycles of the past nine to 36 years, Posson said. Over the coming
two years, he expects many farm products to start climbing, and not just
modestly.
"A 100 percent increase in grain prices would be a
conservative forecast, and even half of that would be a significant
gain," he said.
Posson isn't just tossing out idle hunches. He's a
commodities broker and analyst who's been tracking dairy and grain price
trends for 20 years. Originally a dairy farm manager in upstate
New York, Posson has made the commodities business his full-time
occupation since the mid-1990s.
Posson recently moved his research and brokerage firm, R.F.
Posson & Co., from Fayetteville, N.Y., near Syracuse, to here to be
near his parents in Astor.
"My business is conducted mainly on the Internet and the
telephone, so I could be anywhere," he said. "Most of my
clients are still in the Northeast, but I'm adding quite a few in
Florida."
Dairy and grain are his main areas of expertise, and he operates
five Internet Web sites to distribute his market analyses. Most of
the sites are subscription services that cost several hundred dollars a
year, but he also offers brief summaries of his forecasts for free. They
can be found at www.agfinancial.com/rfpco.
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"Nine out of
10 people are going to lose money at it, so I'd say never risk more than
5 percent of your liquid net worth. Have a plan and don't get
caught up in the emotion of the trading."
JOSEPH E. MEYER
Ormond Beach Investment Advisor |
Many novice investors salivate at the prospect of
the big gains and ignore the possibility of big losses.
Joseph E. Meyer, an Ormond Beach investment advisor, cautions
that commodities trading requires strict self-discipline to prevent
disaster.
"Nine out of 10 people are going to lose money at it, so I'd
say never risk more than 5 percent of your liquid net worth," Meyer
said. "Have a plan and don't get caught up in the emotion of
the trading. If you lose your initial $5,000 or $10,000, then walk
away. Don't follow it up with another $25,000 or $50,000."
Julian Lopez, an Ormond Beach restaurateur, has spent 30 years
dabbling in soybeans and futures based on the Standard & Poor's 500
index.
"It's very, very demanding," said Lopez, who estimates
he spends up to four hours a day following market prices on his
computer.
He recommends new investors protect themselves by giving their
broker a "stop order" -- instructions not to buy or sell a
futures contract outside a specific price range. "That save
you from losing your shirt." |
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Most of Posson's
clients are farmers, food processors and supermarkets. They use
futures to protect themselves against price swings.
Say, for example, a bakery has to set prices now for its
Christmas catalog, but isn't sure where butter and flour prices are
going. It can buy futures contracts for those commodities, locking
in current prices for ingredients scheduled for delivery in
December. It it turns out prices climb, the bakery will offset the
price increase it incurs on
its purchases with the profits it picks up on its futures contract. If
prices fall, the bakery will post a loss on the futures deal, but will
offset it by the out-of-pocket savings on its supplies.
Other clients fall in the categories of "investor" or
"speculator." They have no desire to buy any butter or flour
but just want to profit from correctly anticipating price changes.
That's where "leverage" comes into play. In the
futures market, a buyer makes only a small down payment on what he's
buying, usually about 5 to 10 percent, but he's responsible for covering
the entire cost as the deal matures.
For instance, a $1,000 investment could put you in line to
receive $10,000 worth of coffee beans. Coffee often has big swings
in price, so in a month or two that $10,000 order of coffee might climb
to $15,000 in value, giving you a $5,000 profit on your $1,000
investment. But if the coffee price collapsed to $5,000, you would
have to make up the $5,000 difference. |
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