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Outside the parameters

Agriculture.com Staff 10/27/2006 @ 6:55am

It is always fun to watch the soybean market during the 'Dead Cat Bounce'. It is a little different every year. I like it because there are some definite parameters that I can use to time sales of the soybeans that I have not forward contracted. I never store soybeans into the next year, so this gives me parameters to use in trying to get the best possible price.

By the close of trading on Thursday, cash soybean prices had exceeded all of the parameters. The cash price at my local elevator of $5.84 is $1.15 over the low made in September. March futures followed suit but at a slower pace. That means the basis has improved 30 cents per bushel.

This leaves me without any benchmarks for decision-making. My approach from now on will be to sell in increments until all of the beans are gone. I made the first sale this week at $5.80 per bushel. The only recent year when the market acted anything like now was 2003. That year, yields were down because of summer drought and projected carry over was much lower. With this year's good crop and projected huge carry over, prices started lower and the rally may not last nearly as long.

I wish I knew where the top will be. Many farmers are frustrated by what is going on. If you are one of them, remember, high prices are better than low prices. Market professionals are frustrated also. One broker I talk with occasionally told me he reached the point where he was wishing the phone wouldn't ring. That is heresy for someone who makes his living from commissions. Another referred to the current situation as causing blood to flow on the trading floor. In other words, traders got on the wrong side of the market anticipating a harvest low that never came. Now they are losing huge amounts of money. The only thing I can say about that is "Better them than me."

Cash flow is a tool that is very useful in these situations. When all other indicators fail, looking at the cash price of grain and how that affects your profitability is one of the best ways to judge when to make sales. Anticipated demand is fine, but it doesn't pay the operating notes. It may not come to fruition either. Better prices have a way of not happening when everyone anticipates them. Murphy says, "What everyone knows ain't worth knowing." Selling grain after a big run-up does pay the bills. With the big crop that many of us have, there may be some left over!

(Note: The Dead Cat Bounce chart on my website, soyroy.com, has been updated through Thursday’s close)

It is always fun to watch the soybean market during the 'Dead Cat Bounce'. It is a little different every year. I like it because there are some definite parameters that I can use to time sales of the soybeans that I have not forward contracted. I never store soybeans into the next year, so this gives me parameters to use in trying to get the best possible price.

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