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Roy Smith: It's time to make sales

11/05/2010 @ 2:44pm

Most of the time, timing soybean sales according to the dead cat bounce is a matter of counting days above the harvest low and subtracting the harvest low price from the current bid to calculate the size of the rally. The required ten trading days and 35 cents rally is a clue that the time for making sales has come. Those criteria have held true until the past two years when the bounce has lasted longer and gone higher than at any time in history.

In this marketing environment it is necessary to use something else for an indicator that it is time to pull the trigger. One possibility is to use the calendar. The long term seasonal soybean chart shows that the average day for the peak is the fifth trading day of November. That is today!  Trading strictly by the calendar, soybean sales should be made today. Remember that this is a 30 year average. Any given year that date could be way off the mark.

Another possibility is to sell when the price exceeds the cost of production. Except for those areas with very poor yields, the cash soybean price reached the cost of production long ago. Sales made at that level look poor compared to today’s price. Break even prices have not generally been a good indicator of when to sell.

Market sentiment can be an indicator of when the price is about to break. There is an old saying that the market is most positive at the top and most negative at the bottom. Today it is difficult to imagine the news being more positive than it was yesterday with soybean futures being sharply higher through the whole trading session. A broker I talked to said that everyone in his office was bullish yesterday. No one wanted to go home over the weekend short the soybean market. With everyone so positive the market, who is left to buy?

My seasonal marketing strategies are based on the history of price movement. None of these strategies are right every time. Most have a predictability of about 70%. Sometimes they generate sales when economic conditions look as if prices will continue to go higher. With all that has happened this week and the crop report coming up next week, I keep wondering if this is one of those times.

Using the dead cat bounce strategy, I made the first sale of cash beans two weeks ago with cash beans at $11.06 at my local elevator. I sold the second increment Thursday at $11.86. I have two more increments to sell by the end of December. When my neighbors ask me why I sold when I did, I simply say “It was time”. Besides the criteria I mentioned above, I know that there is a very low probability that there will be at least two more price peaks before prides head a  lot lower. I also know that very seldom does the soybean price go straight down as it sometimes does in a summer weather market. Who knows, maybe I will sell the last increment for $15. I am not counting on it, but if it does, I plan to have a few to sell at that price.

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