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Charts show higher price trends

10/19/2012 @ 4:14pm

By now, most readers are probably aware that I test my seasonal strategies by trading a small speculative account. The strategy used is very simple. When the long term seasonal charts show that the soybean futures trend should be down, I am short. When it shows that the trend should be higher, I am long.  There are a few minor technicalities but basically that is it. I am in the market year around. I use no stops. 

The technique has been very successful over the years. Since I began trading in August 1997, I have had more winning trades than losers. Long term, the strategy has been profitable. In the last year, there have been six profitable trades and two that resulted in a loss. I use the information gained in developing marketing plan on my farm. In general, when I have sold cash beans or hedged futures in a down trend it has been a wise choice. 

There are times when I question if there is a risk in simplifying a strategy too much. The charts currently show the trend to be higher. My speculative account is long January futures. I have cash beans from the 2012 harvest in commercial storage. The bumpy ride from October 2, when cash beans at my local elevator were $14.78, to October 15 when the bid was $14.46 was not enjoyable! But my system gives me no way to change positions, so I rode it out. As it turned out, the system was not all wrong because the bid on Thursday of this week was $15.03. I am back above the buy point on the futures contract by 13 cents. My beans in the elevator are worth more today. 

Evaluating fundamental factors to judge what is ahead is not easy. Basis on both soybeans and corn at my local co-op improved by seven cents, overnight. This should be an indicator that demand has not slowed down. Still, with corn over $7.50 and soybeans at $15, holding on is risky. After the price action this week, holding for a price increase of a dollar, over this week’s low, looks like a good bet. So far, the rally has been worth 58 cents. My simple system says to stay long both cash and futures for at least six more trading days. When my target of a dollar a bushel is hit, selling in increments is a good way to spread risk. Still, having no trigger to get out, if I am wrong, makes me nervous. 

I take some solace that a group of farmers in a neighboring county I had coffee with Thursday, tells me that processors that they deliver to are having difficulty sourcing enough grain to keep the plants operating at full capacity. I know that in my community most of the corn went to town out of the field. I suspect that much of it was sold near $8 as it was harvested. I also know that both corn and soybean yields were roughly two-thirds of what we expect in a good year. That does not mean that prices have to go higher. It does mean that it will be harder to force prices down until extra supplies are available from South America or the 2013 harvest.

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