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Amazing price action

09/16/2011 @ 12:50pm

Price action the last two months in the soybean futures market is one of the best examples in recent memory of how the long term seasonal price charts work. In a typical year, there is a seasonal low the last of July or the third week of August. Odds for that move are about equal for those two time periods. At one of those points, the market becomes over sold. Traders begin focusing on production problems that may have taken place during the last part of the growing season. 

Fear of reduced production brings buying into the picture. This results in a short term rally prior to the September crop report. When that takes place prices get high enough that buying tapers off. The crop report brings the reality of approaching harvest back into focus. The rally ends and prices drop. This year the August low took place on August 10. That was roughly half way between July 31 and the most likely date, August 18. The frost scare high was on August 31. That was seven days earlier than the expected date, September 9. Neither of these moves took place at the exact date shown on the long term chart. However, they were close enough that using them as a trigger to buy or sell futures produced very profitable results. 

November soybean futures closed the day on August 18 at $13.61. They closed on September 9 at $14.25. Traders who bought and sold on those two dates netted $.64 on the transaction. Hedgers who sold November futures on September 9 before the September cop report the following Monday, September 12, are now ahead $.66 on their hedges as of Thursday’s close. 

None of these dates came out exactly as shown on the long term charts.  If an individual would have been lucky enough to pick the exact low and high during that period, the net profit would have been $2.52. Still, the resulting $1.30 profit from the two trades is pretty impressive. The long term charts that illustrate the psychology of the market many times come very close to picking highs and lows as they did in this case.  Any farmer who sold soybeans on Friday before the report should be very happy today. 

The question then becomes when the next opportunity to make sales will be. If prices follow the normal pattern, the current sell off in soybeans will not last very long. The average date for the harvest low is October 5. This date for this move is not as predictable the one based on the September crop report. I will use this weekend to begin keeping a chart of cash and futures prices looking for an indication that the harvest low is past and prices are about to begin the “Dead Cat Bounce”. 

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