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Technical indicators

Agriculture.com Staff 02/08/2016 @ 5:14pm

When the market is as wild as it has been, traders look to technical indicators for direction. Limit up days when prices are already into record territory result in a situation where supply and demand factors are not much help in predicting day to day price movement.

The release of the January crop report left most of us in a very bullish mood. I spoke at a meeting in Ontario on Tuesday of this week. Also on the program was a broker who presented a very bullish scenario based on fundamental analysis. He followed by stating that he had not done the farmers in attendance any favor because now no one would want to sell anything.

The host of the meeting replied that it was okay to be bullish because I had already told farmers when to sell. That was not exactly the point of my part of the program, but I do agree with the broker who said that no matter how high the price, you don't have the money until you sell something.

In today's situation, I find technical indicators a good guide to making sales. The response to the crop report was for prices to be sharply higher for one days. After that, the response was decidedly less enthusiastic. On Thursday of last week, January 17, soybean futures traded nearly limit up early, only to sell off and end the day lower. Such action normally indicates that the market has run out of buyers at the higher level.

In the cash soybean market, the basis widened out considerably. At my location the move was 28 cents. That is also an indicator that the market has run out of buyers. Those factors were enough to convince me to sell corn and soybeans after the market closed on January 17. It proved to be a wise move because I got it done before the limit down move on Tuesday of this week.

Action since the limit down day is more positive. However, when a long term bullish trend changes, it is common to see at least one attempt to regain most of the price that was lost. Individuals who need to sell grain should be patient and try to sell slightly below the previous top. It is not wrong to panic. However, the panic should be controlled instead of just selling into a market where buyers take protection.

The bullish fundamentals remain. However, with soybeans over $12 and Corn over $5, the market could drop 20% and still be high compared to historic levels. Time will tell whether the reversal was a fake out or whether the highs for this move are in. I doubt that the highs we saw recently will be the yearly tops. There is just too much time for production problems later in the season. However, it is easy to think that there could be a drop in prices before a weather problem surfaces.

In this kind of market, options are my preference for pricing new crop grain. Most people do not like options because of the premium cost. Premiums are high when opportunities are big. With December corn at 5.14 and a $5.00 put at 43 cents, you can lock in $4.57. Subtracting a basis of -$.30, that still leaves you with a floor of $4.27. Before the last two weeks, you have never been able to put that kind of floor under new crop corn and still have the top side open. With some patience and strategy, the premium can be reduced, raising the guarantee. I do not necessarily want to do that with a big percentage of my crop. However, locking in a least a small portion makes a lot of sense.

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