Home / Markets / Markets Analysis / Amazing price swings

Amazing price swings

Agriculture.com Staff 08/15/2008 @ 7:00am

This week I have been updating my long term seasonal charts for coming meetings. I now have 29 years of price data in my spreadsheet. I never expect any big changes in the looks of the graphs when calculating a mean price for that many years. I do occasionally get a surprise, however.

I start out doing the soybean chart first, because that is the commodity I find most interesting. It is also where I got a bit of a shock when the analysis was done. The seasonal event that occurs closest to the current time is what I call the "August Low". In earlier years, this came around August 20. However, the line on the graph is almost flat from July 31 through the third week of August. A few years when the low came early, it caused the averages to show the bottom to be the last day of July.

When I ran the averages for the most recent 29 years, I discovered that the average date had again gone back to August 20. The tendency for the market to not move very much during this three week period resulted in a very small move in the price in 2007 causing the average date for the low to be in late August instead of the previous date in July. Even though the line showing the averages on the graph is almost flat during the first two thirds of August, prices are frequently volatile during this time period.

The reasons for this usual market action is that market participants are trying to evaluate the size of the crop that still has some growing season left. Prices get oversold based on good growing conditions after the fear of drought or excessive rain is past. This oversold condition turns into a price rally as problem areas start to pop up while the crop is maturing.

This can happen even when the August crop report turns up bearish numbers as it did this week. It never ceases to amaze me how prices can drop so far so fast, then turn around so dramatically following a negative report. It is another instance of emotions over-powering fundamentals.

On Thursday, the corn market showed more positive movement than soybeans. That would be the opposite of what one would expect from studying the charts. One limit up day does not change a trend. Still, when it happens at an expected time and in the opposite direction the underlying fundamentals suggest, I have to believe that this price strength is more than a one day event.

Historically, the days shortly before the September crop report have been good times to forward price soybeans. The same is true for corn if the rally we saw this week can hold together for a 50 percent retracement. We are still a long ways from that target for both corn and soybeans. I have my finger on the trigger to make sales, but I am not ready to pull it yet!

This week I have been updating my long term seasonal charts for coming meetings. I now have 29 years of price data in my spreadsheet. I never expect any big changes in the looks of the graphs when calculating a mean price for that many years. I do occasionally get a surprise, however.

CancelPost Comment
MORE FROM AGRICULTURE.COM STAFF more +

Farm and ranch risk management resources By: 07/07/2010 @ 9:10am Government resources USDA Risk Management Agency Download free insurance program and…

Major types of crop insurance policies By: 07/07/2010 @ 9:10am Crop insurance for major field crops comes in two types: yield-based coverage that pays an…

Marketing 101 - Are options the right tool… By: 07/07/2010 @ 9:10am "If you are looking for a low risk way to protect yourself against prices moving either higher or…

MEDIA CENTERmore +
This container should display a .swf file. If not, you may need to upgrade your Flash player.
Big Picture: CME Trading Weather