Home / Markets / Markets Analysis / Roy Smith: Ready for a seasonal move?

Roy Smith: Ready for a seasonal move?

Agriculture.com Staff 02/23/2008 @ 8:03am

It is not normal to see soybean and corn prices rally in December, January and February. There are exceptional years, of course, when prices are higher at the end of this time than at the beginning. In those years, I expect the rally going into spring to be even better than the normal 23 cents price improvement in an average year.

The average date for the event I call the John Deere low is February 14. The average date for the spring high in soybean futures is April 28. These are just averages, not magical dates. In any given year these events could vary from the average by a substantial amount. Any of the seasonal events could be missing completely in some year.

This year it appears that the John Deere low was on January 23. Since that day, March soybean futures have rallied approximately $2.00.

It is hard to imagine that the rally could continue through April. Still, numerous factors make such a rally seem not so impossible. The market still needs to buy the correct number of acres of all grains to avoid a spring wheat type shortage situation. Weakness of the U.S. dollar keeps foreign buyers at our door paying prices that seem much less out of reason than if the dollar were strong.

With prices already at historically high levels, there are no resistance levels on the charts. Prices are higher than ever in nominal terms, but nowhere close to levels of thirty years ago if adjusted for inflation. Compared to wheat, soybeans are not so expensive.

I am not opposed to selling grains now just in case the markets fool us with a short-term high in February as they did last year. Odds of that happening are slim given the fundamental factors mentioned above. If it does happen, I anticipate another rally in the summer before good yields are a sure thing. That is a common pattern that resulted in summer highs in the 2007 corn market.

Personally I will keep my new crop sales to 20% of the anticipated production with cash forward contracts. Any pricing I do beyond that will be later, using put options to set a floor and leaving the top open. Options will be expensive but the price they guarantee will result in profit levels that are also historic.

It is not normal to see soybean and corn prices rally in December, January and February. There are exceptional years, of course, when prices are higher at the end of this time than at the beginning. In those years, I expect the rally going into spring to be even better than the normal 23 cents price improvement in an average year.

CancelPost Comment
MORE FROM AGRICULTURE.COM STAFF more +

Farm and ranch risk management resources By: 07/07/2010 @ 9:10am Government resources USDA Risk Management Agency Download free insurance program and…

Major types of crop insurance policies By: 07/07/2010 @ 9:10am Crop insurance for major field crops comes in two types: yield-based coverage that pays an…

Marketing 101 - Are options the right tool… By: 07/07/2010 @ 9:10am "If you are looking for a low risk way to protect yourself against prices moving either higher or…

MEDIA CENTERmore +
This container should display a .swf file. If not, you may need to upgrade your Flash player.
Cool Tools Christmas Edition: Part 2