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Long-term charts support a rally

08/03/2013 @ 7:16am

Last week, I discussed the market action I referred to as a crash. Apparently the market is not ready to correct that situation because at least new-crop bids continue on their downward spiral. Logical questions now are how much longer prices will drop and how low will they go. 

Fortunately, I finished updating my long-term seasonal charts last week as prices were tumbling. History of the corn and soybean futures prices gives a clue as to what might be ahead.

Soybean charts show a period of strength from the middle of August until the September crop report that comes around September 10. The market worries about the possibility of yield reductions caused by early frost. In my years of farming, I have only seen this problem materialize in 1974. However, in several years the psychology was strong enough to offer a possibility for making new crop sales before September 10.  Corn futures have a move higher from July 15 through August 15, and then drop going into the harvest low.

Both grains have very good odds of having a harvest low around October 4.  Futures prices, for both of the grains, show a period between now and October when there could be opportunities to make new-crop sales. Odds are that in that time period there will be some kind of price move base on fears of damage from early frost. It is not a guarantee, but with the late planting and cool growing season, it seems that this year the probability will be greater than normal.

Both grains show a strong tendency for a rebound soon after harvest gets underway. This is the move I call the dead cat bounce. As with the frost scare, there is no guarantee that it will happen. When it does, there is no certainty as to when or how high it will go. However, the moves on the long-term charts are strong enough to make those time periods good targets for sales. An attractive thing about selling during either of these periods is that by mid-August farmers have a general idea of their yield potential. This eliminates most of the production risk.

Not all hope is lost for a rebound in prices.  Odds are good that at some point there will be some retracements. They will probably not go back to the levels seen in the early summer. Also, there is a good possibility that the basis will get better after harvest is finished. That means that sales of futures with the basis left open will probably be better than cash forward contracts.

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