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More on the 'bounce'

Agriculture.com Staff 10/16/2009 @ 12:47pm

I am getting a lot of calls and e-mails concerning the details of the 'Dead Cat Bounce' in the soybean market. This year's move has been spectacular to say the least. The first principle that everyone needs to understand is that the market does not have to do anything.

There is always the possibility of something unexpected, regardless of what the supply and demand fundamentals show. Having said that, the current move has fulfilled all of the necessary criteria for a typical bounce except that the required number of days up from the harvest low have not passed.

As I pointed out in a thread on the "Marketing" talk page earlier this week, there have been other years when the rally at harvest has been as abrupt as it was this year. Such a swift rebound is unusual, but not unheard of. The year that most resembles this year was 1997. If action this year follows the pattern of 1997, there will be a pull back, followed a few weeks later by a new high. Again, the market does not have to follow this pattern. I am just pointing out that it could happen. There is a good possibility that there will be opportunities to sell at even higher prices in the near future.

There is an attitude in among farmers that sunshine and warmer weather will cause soybean prices to break. My belief is that there are more important underlying factors than weather. The fact that supplies are tight even with a big crop still to be harvested is probably the biggest factor. Outside markets such as stocks, precious metals and foreign currencies have all had positive moves.

If you think that the rally in grains makes no sense, consider what has happened in the stock market. The value of my small IRA account has increased 77% from March 5 until yesterday. It has recovered most of what it lost previously. This improves the psychology for the grains as well. No doubt improving weather will put pressure on the grain markets.

However, for soybeans at least, the correction should be short lived. Once harvest gets near completion, higher futures prices should be accompanied by improving basis. This, in turn, increases the odds of a new high later in the fall. It is also possible that the high on October 12 will be the high for the fall. The odds are better of a higher high later in the season.

I am getting a lot of calls and e-mails concerning the details of the 'Dead Cat Bounce' in the soybean market. This year's move has been spectacular to say the least. The first principle that everyone needs to understand is that the market does not have to do anything.

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Weather Trumps Demand