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Could it be?

Agriculture.com Staff 10/02/2009 @ 8:26am

During soybean harvest one of the things I watch for is the cash soybean price for indications of the "Dead Cat Bounce". Over the year I have found it to be one of the most useful tools for marketing of soybeans. It does not usually result in capturing the highest price of the year. That comes in the spring following harvest.

However, coming close to the end of harvest or shortly thereafter, it is ideal for those like me who do not store soybeans. It also comes at an opportune time from a cash flow standpoint. If the income is needed immediately, it is available before the end of the year. If the farmer wishes to delay income for tax purposes, it is a short wait to delay the income until the New Year.

For many years I started tracking soybean prices on October 1 , or about the time harvest began. In recent years there have been examples of the harvest low coming in September. Therefore I now start tracking prices the first business day of September. I watch both cash and March futures. The location of the cash market is not important. It is important to use the same elevator location each day.

The reason for watching the futures market is to track the basis. The bounce is always accompanied by a big improvement in basis. A dramatic narrowing of the basis can be an indicator that the bounce is under way. Conversely, having the basis flatten after a big positive move is an indicator that the bounce is about over.

The first things I watch for are several consecutive days higher after a major low in prices. Of course, you never know if the low has been reached until it is past! I then look for a rally in the cash market of at least 35 cents and ten trading days. Fifty cents rally with a duration of 15 days is a more reliable indicator. Unless prices start out very low, 50 cents is usually possible, even if it takes as long as two months to achieve the top.

I don't usually get too serious about looking for bounce indicators this early in the harvest. However, as I set up my spreadsheet this week, I discovered what looks like a possible harvest low on September 11. A very quick rally took prices 57 cents higher in only two days. Because it lasted only two days, it does not qualify as a true dead cat bounce. In the past few years there have been several very quick bounces early in the harvest season. Each time it was followed by an even better bounce later in harvest.

We never know if a low on the charts is truly the harvest low until it is well past. However, using the indicators mentioned, it is easy to pick 50 cents to a dollar a bushel from the cash soybean market without grain bins and without waiting until the following spring. With my small farming operation I no longer like to store and deliver soybeans from the bins on my farm. The dead cat bounce gives me a way to get price appreciation without that expense and labor.

During soybean harvest one of the things I watch for is the cash soybean price for indications of the "Dead Cat Bounce". Over the year I have found it to be one of the most useful tools for marketing of soybeans. It does not usually result in capturing the highest price of the year. That comes in the spring following harvest.

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