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Happy holidays, watch basis levels
It is holiday time. It is not just the weather that has taken a turn for the worse. Grain markets are doing what is typical for this time of year. After an impressive second dead cat bounce, the middle of this week was a disaster in the soybean market. There was a high for the second bounce on Friday of last week and Monday of this week. In the three days since Monday, cash soybeans lost 88 cents here in eastern Nebraska. The rumors are that the Chinese were buying beans on Monday and selling them later in the week. Go figure! Were they trying to move the market or was there a factor not apparent to farmers here in the Midwest?
On Monday, I drove to Lincoln to participate in a trial run of the new marketing game software at the University. Sharon went along to do some shopping. I mentioned to her that the basis on beans was acting strange. Cash bids for immediate delivery were at a premium of 15 cents over those for January. The market was flashing a sign that the beans were needed now, not after January 1. We should have gotten on the cell phone and called in an order immediately!
Besides the basis hint about trouble ahead, having the dead cat bounce last into the New Year is very unusual. The market was telling farmers something. Those who ignored it paid the price this week. As of this writing, 10:00 A.M. on Friday, prices seem to have new life. Time will tell if this is just an over sold bounce or if it signals processors and exporters buying bargains. Regardless of which it is, the next two weeks are typically a time of volatility because of thin trading over the holidays. The hope is that the buying will continue and that the trend will be up.
In the last five years, the market has shown a strong tendency to go higher from January 1 through April. This is in the face of South American production being available in the late spring. My bias is that this might be the year when the uptrend does not last and that sales need to be made sooner rather than later. Sellers need to continue to watch basis as an indicator that demand is shifting to the crop south of the border.
Outside markets may play a part of price action until the problem with the so called “fiscal cliff” is solved. As this is being written the stock market is down and the dollar is up. Financial chaos is probably not good for farmers in the long term. However, in the short term a cheaper dollar should be positive for grains as it makes our products less expensive for importing nations.