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Is it 'dead cat bounce' time?

10/05/2012 @ 7:36am

Action in the soybean market, on Thursday, proved that prices could go both directions. Positive numbers in the cash market could be the first indication that the 'dead cat bounce' is under way. Before getting too optimistic, take a look at where prices have come from. I started keeping track of prices for this year’s bounce on September 4, exactly a month ago.

In that time, the cash soybean offer at my local elevator in eastern Nebraska dropped $2.09. Meanwhile, there were at least three attempts to move higher. One of them was an almost limit up response to the September crop report. Even that was not enough to turn the trend up. The difference in this last two-day rally is that this time it comes when the long term charts show that a major bottom is due.

The September 12 report, that fundamentally should have been positive for prices, came at a time when the long term charts show good odds for prices to go down. Even the positive supply numbers were not enough to prevent the negative psychology, at this important time, from pulling the props out from under the soybean market. The result was one of the biggest price moves down in the history of soybean futures.

The charts do not cause such price moves. They simply indicate the psychological make up of the market traders at certain times, making the market vulnerable to negative news. In this case, it may have simply been that the market got over-bought when it reached $17 to $18.

The important thing now is for those who have soybeans to sell to track the cash and futures prices to take advantage of the tendency for prices to rally in October and November. To qualify as a true 'dead cat bounce' there needs to be ten days of positive price action and 35 cents improvement in the cash price. More likely at current price levels is a rally of a dollar a bushel which takes 15 days or more.   

My feeling is that this could easily be the beginning of the bounce for this year. Harvest pressure on grains will last only a few more days in my area. That usually means improving basis and less downward pressure on futures prices. Soybean and corn prices do not usually go straight up. That is why I find it useful to track both cash and futures to give me a complete picture of price structure.

It is easier for me to make good marketing decisions if I have a strategy that is less a matter of judgment and more of a hard and fast rule. I will be watching for that trigger point from now on!

   

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Soybeans Rally on Demand, Weather