You are here
Don't be surprised -Roy Smith
The much awaited government crop report will be released at 7:30 am Monday.
Because of the importance of harvesting a big crop this year, this report has been anticipated more than most crop reports. My impression is that most people think the report will find yields lower than what is necessary to provide adequate supplies for the coming year. This has resulted in a rally that peaked on the last day of August.
There is a pattern on the long term soybean charts that results from the unique psychology of the market just before harvest begins in the Midwest. In many years, there is a major low in prices in the last part of July or the month of August. The market gets over sold as prices drop. That did not happen this year. From this oversold condition prices rally as traders gets concerned about production problems late in the growing season.
In many years, this rally results from a fear of early frost. Sometimes it is a late season dry spell. Sometimes it is a combination of problems as it seems to be this year. For whatever reason or combination of reasons the top of this rally seems to come around the day of the September crop report. Some years it will be shortly before the report. Some years it will be a day or two after the report.
The crop report brings the psychology of the market back to reality in most years as it indicates that there really is a big crop about to be available when harvest begins. This results in the price dropping in the final days before harvest gets into full swing.
My take on the soybean market this year is that there is a good chance the production problems have already been bid into the price. Don’t be surprised if prices drop next week, even if Monday’s report appears on the surface to be bullish. Watch the cash bids for a clue to future price direction. I observe that here in southeast Nebraska the negative basis now exceeds a dollar per bushel. That indicates that at least in this part of the soybean growing area good crop is about to be harvested .
Years of experience has taught me that that if I had to pick one day of the year to sell soybeans it would be the day before the September crop report. While it does not necessarily always bring the highest price of the year, there are other advantages to selling today. If there is a big rally off the harvest lows, the chances are better for the top price to be today rather than after the combines roll. By now most of us have a good idea what our yields are going to be. Earlier in the growing season, yield expectations are mostly a guess. The basis is probably better today than it will be if the crop really does turn out to be large.
The optimistic side of the current condition is that if prices drop next week, the sell off following this crop report is usually of short duration. The average time for the harvest low is the first week of October. Following that the next move on the long term charts is the dead cat bounce. Around September 10 I begin tracking both the local cash bid and the March futures closing price to tell me when to price cash soybeans on the bounce. I will do that next week.
Next week Husker Harvest Days will be held at Grand Island. We will tape a Market Journal Show at 11:00 A.M. on Thursday next door to the University of Nebraska Building. I hope to see many of you there.