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Soy sales theory intact-Roy Smith

06/03/2011 @ 9:49am

One of the principles I try to teach at my winter marketing meetings is to never sell soybeans in February. I base this on the research showing that the high price of the year never comes in February. I have occasionally been taken to task for being so sure of myself for being so inflexible. 

At one point, I had a heated discussion with an analyst from a major marketing advisory service who insisted that there was no truth to my theory. However, when I challenged him to find a February high, I got no response.

I thought that this year was going to be the exception to the rule. Since the high on February 9, the soybean market has been comfortable trading in a range bounded on the top-end by that high. From the high posted on Thursday of this week, it will take pennies to make a new high. Exactly how much more it will take to confirm my rule depends on which futures contract you use or if you use cash bids instead.

The cash bid for new-crop soybeans on Thursday of this week was actually a penny higher than the highest cash bid in February. The high cash bid for old-crop soybeans was higher in February by 14 cents than the high this week-so far. 

The high of the July contract was 63 cents higher on February than yesterday.  The difference is in the basis versus July futures and the spread between March and July futures. If the market closes higher this week, it will make me look smart for sticking to my beliefs when it looked like the rule was finally going to be broken..  

The tight supply situation and extremely high price are causing unusual basis moves and spread changes. It seems as if the market is finally taking note of the production risk that has been taking place during spring planting. Problems in the Missouri River flood plain usually go unnoticed by traders in Chicago. However, when added to those of other farming regions, even the relatively small acreage along the Iowa and Nebraska border will contribute to the already tenuous situation.

I finally had the nerve to scout my river-bottom farm Thursday afternoon. I was prepared for a worse situation than I actually saw. Two weeks ago, I had planted roughly two-thirds of the lowest field to soybeans. What I saw was flood water about a foot lower than the highest levels from last year and 1993. The Corp of Engineers is warning that as much as five more feet of water is to be expected in the next two weeks. If that happens, the lowest field will be completely wiped out. However, the next one higher will probably be safe-if we get no more extreme rain in my area.  

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