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Al Kluis: Looking into the future
“Will you use those seasonal patterns to make cash and new-crop sale recommendations after this year? It did not work real good in 2010.” That was the question and comment from a farmer in western Iowa.
I had to admit to the farmer that 2010 was a very unusual, counter-seasonal marketing year.
Corn and soybean prices put in a major high in early January, a major low in late June, and then rallied right into and right through harvest.
Yes, I told that farmer, I would still use seasonal patterns as one of my market analysis tools in 2011.
I view late June as being a key change-of-trend time period. Here is an excerpt from the front page of the June 26, 2010, Al Kluis Report weekly newsletter, where I wrote this analysis about timing the grain markets:
“June 18-21 and July 2-6 are two of the most important change-of-trend time periods. In 2008 and 2009, those time slots had major highs in the corn and soybean markets. Be ready this year for the opposite.”
The seasonal odds analysis that I have used for over 30 years is the concept that corn and soybean prices will usually peak in the April-through-June time period and then bottom in the August-through-October time period.
I have sorted through the most recent 20 years of price data and provided two seasonal charts that I think are the best illustrations of the seasonal concept. I have also provided the five-year corn and soybean seasonal odds charts. I want to emphasize that none of these patterns have 100% reliability, but the examples shown have a reliability of 60% to 80%.
So what did I use this year besides seasonal odds in 2010? And what will I use in 2011?
I used three marketing tools in 2010 that had me making sale recommendations as prices worked higher. These analysis tools also helped me avoid any sales at the low.
1. Price And Profit Sales.
I made a cash sale of the 2009 crop corn and soybeans and recommended a 10% sale of the 2010 corn crop in January 2010. Prices were at a good enough profit level to make a cash sale and get some new-crop corn hedges on.
2. Time Cycle Sales.
I worked with several time cycles that projected a major countercyclical low in late June or early July. So I made sure that I had sales on ahead of that time window, and I had livestock feeders and ethanol shareholders buy that late June low. I also bought corn ahead in early September ahead of the October USDA crop report.
3. Retracement Sales.
Once prices rallied above last year’s high, I began looking at the long-term corn and soybean charts. The monthly corn chart showed resistance at $4.70, $5.20, and $5.80.
For soybeans, the price retracements projected a rally up to $11.15, $12.20, and $13.15. I made some sales at each of those retracement levels.
I’m not surprised that corn and soybean futures got up to those levels; I am surprised, though, at how fast they went up to those levels.
So what will I use in 2011 to market my crops? I will implement these five sales tools.
1. Price And Profit Sales.
I have most of my customers 60% to 80% sold on the 2010 crops and 10% to 20% forward-sold on 2011 based on the high profit level we are at.
Even though the trend is up and the news is bullish, I am concerned with the global economic outlook.
Therefore, I will have my customers holding call options rather than cash corn and soybeans into the spring and summer of 2011.
2. Elliott Wave Sales.
The Elliott Wave Pattern suggests that prices will move up in three waves and will move with two corrective waves back down. As I am writing this column, it appears that we are in the fifth and final wave up.
3. Seasonal Odds Sales.
I plan to wrap up my cash sales of the 2010 crop and have 100% of my insured bushels sold ahead or covered with puts by the end of June.
Selling ahead did not work in 2010, but it has worked 27 out of the last 30 years. So I will stay disciplined and get the new-crop profits locked in.
4. Time Cycle Sales.
The time cycles I work with project a possible high in mid-May 2011. If I see high prices and profits and the right kind of market action, I will get my cash sales and new-crop hedges in place about one month earlier than usual.
5. Retracement Sales.
I have already hit my price targets at $5.80 for corn and $12.20 for soybeans. The next targets I have on my long-term charts are at $6.25 for corn and $13.15 for soybeans.
By the time you read this, I may have hit those targets and I will have made more sales.
What The Future Holds
I have lived through eight major rallies that have always been followed by a price collapse in the 36 years that I have been trading the grain markets.
The news is always bullish at the top, and you will often read some wildly bullish forecasts when prices are peaking.
The farmers who have stayed farming and have stayed profitable have been the ones who have made incremental sales into the markets and have stayed disciplined.
When the grain market tops out, it will represent the high for the 2010 and 2011 crops. I would rather be two weeks too early than two days too late.