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'John Deere Low' returns to the grains?

02/15/2013 @ 3:08pm

When I began studying grain market seasonal price moves back in the 1980’s, one of the first things I discovered was what I then called the “John Deere Low”. The theory was that farmers sold grain in February to raise cash to make payments on farm equipment, real estate loans and other cash flow needs. It was one of the most reliable of the seasonal price moves at that time. 

Over the years, the reliability of the 'John Deere Low' gradually diminished and that move in futures prices became less predictable and smaller in scope. Since 2007, the low has become so small as to be almost irrelevant. The southern Hemisphere crop has subsequently become a bigger part of the world market. At the same time, the trend higher during the winter and early spring has gradually become greater in scope and more predictable in terms of timing. 

In the past week, I have been getting questions from farmers who remember the chart patterns from the old days, wondering if the 'John Deere' move has returned in 2013. From what I know, historically, and my observations of the current market, it seems that is a possibility. As of today, soybean prices have dropped $.62 in the local cash market since February 1.  That certainly qualifies as the necessary pull back, before heading higher in the spring. 

For the past few days comments on various market commentary pages have suggested that the soybeans have become over sold. It is difficult to argue after such a sharp drop in so short of time. It is probably expecting too much to suggest that soybean futures will retrace the drop as fast as the price came down. Nonetheless, the calendar says that the odds are good for at least a minor retracement in the next month. Remember that the South American crop will be harvested eventually. That by itself could limit the up side potential by planting time in this country. 

On a side note, I went long July futures in my speculative account on the close of trading Thursday. I had been short since the last trading day of December. It was a thrilling ride up and back down. For awhile, it appeared that the market was going to give me some profit on the final day in that short position. When the dust settled, I had a 2 cent loss for all of the excitement since the end of last year. I am ready for some profit on the recent trade! 

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