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More bounce?

Agriculture.com Staff 01/09/2009 @ 8:13am

I normally stop tracking the soybean cash and futures markets for the "Dead Cat Bounce" at the end of the year. It is rare to see the bounce last into the New Year.

For the 2008 crop, the bounce was one of the best in history. Actually there were two bounces, one in October and early November, the other beginning on December 5. The most recent offered farmers the opportunity to sell cash soybeans here in Cass County Nebraska for $1.70 over the low experienced just a month ago.

The rally during this time period in an average year is $.50 to $.60. In high price years it has occasionally rebounded a dollar or more. This year’s improvement greatly exceeded the normal and ran 20 trading days, slightly shorter than would be expected for such a big move.

Another unusual aspect of price action was the tremendous basis improvement that took place between the time soybean harvest began in September and the recent price peak. From September 29 to December 31, the basis improvement versus March futures was 80 cents. That must surely be a record improvement at that time of year. However, so far in 2009 the basis has widened 19 cents, also a large amount for such a short time.

I see several red flags in the current market. One is the basis change I just mentioned. When the basis deteriorates at the same time futures prices are going up, this indicates that the real demand for the cash beans is not as strong as the speculative demand for futures. Secondly, grain prices are less likely to make a big run higher in January and February than during any other months of the year. Last year notwithstanding, big rallies in the winter are rare. Third, after such a big move it is common to have a retracement. Prices seldom go either up or down in a straight line. After a dollar and thirty cent run in the futures market, it is easy to see how prices could fall back as the market anticipates spring planting.

The government report coming out next week will provide a hint of what direction prices will go until spring planting weather becomes a concern. I sold some cash soybeans close to the recent price peak. In most years I would be sold out of old crop supplies by the end of the year. For the beans that are still in storage, patience is the key until we get a better idea of fundamentals next week. From the overnight trade last night (January 8-9), it looks like the spring high is coming sooner rather than later in 2009.

I normally stop tracking the soybean cash and futures markets for the "Dead Cat Bounce" at the end of the year. It is rare to see the bounce last into the New Year.

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