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Dead cat bounce right on time

Agriculture.com Staff 10/19/2007 @ 1:40pm

Every year I watch the cash soybean market for the "dead cat bounce." Every year the market does something to try to fake me out. Every year the market gets back on track. Sometimes it is sooner, sometimes it is later. This year it looked as if the harvest low was September 6. If it would have been, it would be the earliest in history. I started counting days, thinking that this might be the bounce. However, cash beans made another low on October 8. It was not as low as the one a month earlier, but fit the expected time pattern much better.

Since the low on October 8, the price rallied 73 cents by the close on Thursday. That exceeds the average price improvement of 50-60 cents. The elapsed time is only eight days. If the market can continue to go up, it needs only two more days to complete the minimum time to meet the criteria for a dead cat bounce.

The basis here in Cass County has improved 14 cents. That is not close to the average improvement of 30-40 cents. Considering that soybean harvest is less than half completed and that stocks are huge, any basis improvement is a step in the right direction. There are no definite guidelines on judging how much basis improvement is required before it is time to pull the trigger.

I will be watching the markets closely next week for an opportunity to sell the beans that I have harvested. I no longer store them on the farm because I do not have enough to fill a bin. Last Friday we got about 60% of my crop harvested before the rain started about 7:30 p.m. I have a week before the free elevator storage ends and I have to pay. That may be enough complete the bounce and get the price I want

The typical bounce has three or four peaks before prices head much lower. It does not happen every year. However, it is frequent enough that I sell the crop in increments to spread out the risk.

The typical bounce has three or four peaks before prices head much lower. It does not happen every year. However, it is frequent enough that I sell the crop in increments to spread out the risk.

All of the above should not be taken as an indication that I am bearish on the outlook for soybean prices. With the projected carry over of 215 million bushels, there is room for prices to go higher. If we do not get a break from the wet weather, the market could react sharply to the possibility of yield losses. The other side of the coin is that selling on the dead cat bounce has worked very well for me for more than 20 years. It seldom picks the top price, but it always has gotten me several cents to as much as a dollar a bushel better than the harvest low. There is plenty of time to buy futures or call options if I want to be long in the event of a big rally next spring.

Every year I watch the cash soybean market for the "dead cat bounce." Every year the market does something to try to fake me out. Every year the market gets back on track. Sometimes it is sooner, sometimes it is later. This year it looked as if the harvest low was September 6. If it would have been, it would be the earliest in history. I started counting days, thinking that this might be the bounce. However, cash beans made another low on October 8. It was not as low as the one a month earlier, but fit the expected time pattern much better.

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