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Market fireworks after July 4th -Roy Smith

06/24/2011 @ 1:52pm

One of the long time marketing principals I discuss in my marketing workshops is the importance of the Fourth of July weekend in the grain markets. 

In many instances, this holiday seems to be a pivotal point for prices. The big problem, this year, is in evaluating whether the pivot will point higher or lower in the week or weeks following the holiday. Looking at a long term chart of prices, there is little doubt that the market is in an up trend. Looking at price action in the last two weeks the trend has definitely been down. 

Further complicating the issue is the question of which grain crop one is using as an indicator. Corn has definitely been in a long term uptrend. However, soybean prices have still not exceeded the high posted in February of this year. At least, both corn and soybeans have experienced a down trend in the last two weeks of trading. 

The question then becomes one of judging whether prices will rise or fall after the long weekend. It is tempting to use the old cliché “Your guess is as good as mine”. It really boils down to being management decision. Does corn at $6.60 look good compared to the price of $5.07 on November 1, 2010. Or, does corn at a dollar a bushel less than two weeks ago look bad in my cash flow? Only individual farmers can answer that. 

One thing that has worked very well over the years is my “drop dead” strategy of not holding grain unpriced after the Fourth of July. The tendency of prices to drop after this important weekend is strong enough that three out of four years I have been happy I sold before the holiday. In 2008, I finished hauling the last of the 2007 crop the last week of June. I had 2,000 bushels more than what was contracted. I sold it on the open of the first trading day after July 4. It ended up being a few cents higher than the highest price ever posted for corn at the Midwest Coop, until the recent rally in 2011. The strategy was very simple. Never hold unpriced grain past July 4. 

When grain prices are in a long term trend higher, the “drop dead” strategy bites me a little. That happens about one year out of four. In the other three years, it saves me from a lot of financial and psychological pain. I suspect that 2011 will be one of those years when holding grain causes pain later in the summer. My hope is that there will be a rally, early next week, that will be a selling opportunity. If not, waiting for a weather rally will be a risky venture that will require steel nerves and a quick trigger finger to be profitable! I thought for a few minutes I was going to get that opportunity today (Friday). Prices unfortunately trended down after the opening, instead of heading higher as hoped. 

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