I hate weather rallies!
Look at any chart of soybeans and corn and it appears that weather rallies are an ideal time to sell grain.
There is no doubt that action in the corn market can be classified as a weather rally. The excitement was due to excess rainfall during planting as opposed to the usual drought rally. Nonetheless, it had all of the characteristics of a traditional weather rally.
There are three reasons I find weather rallies difficult to sell in to. The first is that the timing and extent of price improvement are unpredictable. I can handle that. In fact, the normal high for soybeans on the long term charts is May 9. The top of the most recent rally was May 7, only two days early. Being within two days of a major change in trends is usually pretty close. In this case, Prices on December futures dropped from the high on Monday of $3.93 to the close on May 9 of $3.66, or 27 cents. That is not so good! (December futures traded over $4 briefly in over night trade).
The second reason weather rallies are difficult times to sell is that the highest price usually occurs a day or two before the weather problem ends. Many times I have seen prices rally because of dry weather, only to turn and go down two days before a big rain. Last week, the highest price came during overnight trading Sunday night while the rain was still falling. It is hard to understand why corn prices fell during the trade on Monday while rivers were still rising.
The third reason I am not usually successful at selling into a weather rally is that the highest prices come when the conditions are worst at my farm. In this case, Sharon woke me at 3:00 A.M. Sunday morning to tell me that we had water in the basement. By the time I got there, water was actually flowing through a door that separates two rooms. I missed church that morning for the first time in a long time. By the time Sharon got home around noon, I had the flow pretty much stopped and the pump was getting ahead of the situation. Fortunately, our house was designed to allow excess water to drain out of basement drains. We have the mess mostly cleaned up today.
The five inches of rain Saturday night and almost five inches the previous week did a lot of damage to fields that were already planted. One farm next to me had new terraces that mostly spilled over, leaving mud on my farm. River bottom fields were covered with overflow. It will be a few days before we will know if the corn survived. The water receded quickly, so there is hope that the little plants will make it. It will be weeks before fields in those areas can be planted or replanted. Even though I did not suffer any crop loss and there was little damage to my house, my mind was not on selling corn during the overnight trade Sunday. By the time I saw prices Monday, they were already lower and headed down.
Time will tell how much this weather event has taken off yields. Price action today (Friday) shows that markets early this week may have been only a short term reaction to improving weather forecasts. There is almost sure to be more weather excitement this summer. Corn futures have been trading in a channel for several weeks. The next move, which probably starting today, should be to the top side of the channel. Selling into a sharply higher price will be just as difficult as selling into the last rally!