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Bam! Boom! Bear market!

Agriculture.com Staff 02/13/2016 @ 5:45pm

A few weeks ago we indicated that a bull market emerged in soybeans with little more than a few big days up in prices, and that nothing changed in the yield prospects of the crop, the growing season didn't make an about face in weather, exports didn't all of a sudden change, Russia didn't start buying grain in bunches, and neither did China. Ethanol plants didn't explode in their development, and livestock producers didn't expand due to high profitability in their sector.

The only thing that changed was prices, as the rally was not related to production or supply cutbacks which is typical during the summer months. It made us openly wonder just how long this rally could be sustained.

Well, in 3 days in mid-August we lost $1+ in soybean price for new crop (old crop was even more drasic), with a huge turnaround in the psychology of the market. Since then soybeans have rallied 60+ cents, and we are back above $10 soybeans again (an acceptable price level to Pro Ag) making us all feel much better. You have to wonder if this isn't too much of a good thing -- should it be sold? Can prices stay up here?

Pro Ag has noticed that our crop conditions for soybeans have improved quite a bit the last few weeks, with our yield model up to 44.8 bu/acre for soybeans -- much above USDA's last projection, and up 1.5 bushels/acre in the last 2 weeks! The crop is improving at a faster pace than anytime all year as we race to mature the crop in front of frost threats. So ironically, while the frost card is being played in many traders minds, the crop is actually improving in a rapid way as we move towards maturity. That doesn't sound like a market that can sustain a long rally into harvest.

Which begs the question, what happens if we do in fact have a late frost? If this massive crop potential reaches maturity due to later than normal frost dates across the country? Some have been pointing to the Southern Oscillation index as indicating the beginning of an El Nino condition, whereby North American winter temperatures move above normal. So far, that hasn't happened as cooler than normal weather has prevailed to this point, but what if the warm weather arrives just in time to leave us frost free to October 15?

We are sensing a shift away from the bull market, and the odds starting to favor a return to the bear market that we had all along this spring, other than the brief spurt higher. Reminds one of the rally in 2008 in late July/August, a short term phenomenon that did take us $1.50 higher in corn in short time, only to lose it all and then some into the harvest lows around $2.80-$2.90 corn and $8 beans. Let's just hope that pattern doesn't repeat itself. But then again, who wants to rely on hope in their marketing plans?

Instead, with soybeans above $10, maybe its time to stop staring the gift horse in the mouth, and start to make some marketing decisions. After all, the soybean price is still decent -- it hasn't pulled that good price ship out of harbor just yet. But the engines of this bear market ship might very well be warming up!

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