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Looking way back on prices - Roy Smith

12/30/2011 @ 11:10am

Every year I update my long-term seasonal charts to reflect the most recent price changes. Until this year, I always charted December corn futures and November soybean futures going back to 1980. For comparison purposes I also charted the most recent ten years to observe if the basic nature of the market had changed over the years.

This year I made a major adjustment to my approach. I decided that going back more than 20 years probably reduced the relevance of the data because of age. On the other hand the adjustment of prices higher in recent years might reflect changing fundamentals. Therefore, when I updated this year I looked at two time periods. The longer period is the 20 years from 1992 through 2011. The shorter period is from 2007 through 2011. I never trust conclusions drawn from less than five years of data. I studied the same years for both corn and soybeans.

Many market watchers have assumed that the basic nature of markets has changed. The conclusion I draw from a study of the charts is that while the price level has changed dramatically, the psychology of the various price moves has not.

For soybeans, the range from low to high for the 20 years was $6.85 to $7.35 when averaged for the period. The most recent five years has a range from $10.20 to $11.60. The most likely months to hit the high price of the year were and still are the months of June and July. The rally before the September crop report continues to be a good time to forward price soybeans. The dead cat bounce has worked better in the last five years than at any comparable time in history.

Corn futures follow a pattern that is similar but not exactly the same for both time periods. For the 20 year period the low to high range was $2.90 to $3.20. For the most recent five years the range was $4.50 to $5.35. The rally prior to the September crop report has become more pronounced in the most recent five years. The dead cat bounce is much less pronounced in the corn market than in the soybean market.

My conclusion is that there is more urgency to forward price corn than soybeans because the harvest and post harvest rallies in soybeans are larger and more predictable. Also, farmers with irrigation have higher costs but also more predictable yields so it may be more important to lock in the price when a profit level is offered by the market. This is a situation where crop insurance with a price guarantee becomes a valuable marketing tool in making sales well ahead of harvest.  

My conclusion is that the long-term charts continue to be a valuable tool for deciding when to sell grain. As with any other tool, they do not get perfect results every time. However, they are a good base from which to implement other means from which to make marketing decisions. Over the years I have found that selling at certain times of the year and avoiding sales at other times are better than most seat-of-the-pants decisions which are not based on historic research. When combined with other technical means of decision making, selling when the charts point to favorable odds for good prices has worked well over the years.

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