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Roy Smith: Surprise!

Agriculture.com Staff 08/03/2009 @ 8:45am

In studying my long term seasonal charts, occasionally I get a revelation. That was the case yesterday after the big move up in the soybean market. A limit up day is occasion for some serious chart watching, especially when it comes in the summer of a year when there is no drought.

The long term seasonal charts show a major low in soybean futures sometime in the first 14 trading days of August. Then the trend is higher until September 10 or the day of the September crop report.

The low in August is more of a plateau than a spike low. On average it lasts from the 21st trading day of July until the 14th trading day of August. Thursday was the 21st trading day of July this year. It was not the low for the month because the price wash out following the July 4 weekend was actually lower. However, to see a rally such as yesterday's on the exact day shown on the 29 year chart certainly gives credibility to the technical system.

The rally in August and early September is usually a function of the trade fearing yield damage from early frost. This year is seems to have been triggered by China reversing their position from being a seller to being a buyer. It had been feared that they would sell soybeans purchased earlier back into the world market. Instead, they started buying again. To me this seems like the opposite of an unexpected rain after a prolonged dry spell. Instead of a limit down day that has happened in dry years, the buying resulted in a limit up day.

I had intended to buy call options to protect my hedge positions in the corn market. Corn prices followed soybeans higher in yesterday's move. However, the long term charts show less of a move for corn futures in an average year. I still hope to purchase those options on a pull back following yesterday's rally. That will set up the possibility of selling more of the 2009 crop at some time in the future. At any rate, it should be possible to protect a position with a dollar profit for about 10% of that amount.

Whether or not I get the opportunity to purchase the calls, Thursday's price improvement should not have been a huge surprise to anyone who watches seasonal price trends. If prices hold true to the long term charts, the rally has the potential to last at least three weeks. It could last until the report in September. I certainly hope that prices improve enough to allow me to make more new crop soybean sales at a price close to $10 per bushel.

In studying my long term seasonal charts, occasionally I get a revelation. That was the case yesterday after the big move up in the soybean market. A limit up day is occasion for some serious chart watching, especially when it comes in the summer of a year when there is no drought.

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