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SoyRoy: The cash crash
In the early versions of “Winning the Game” marketing education courses sales were allowed at regular intervals throughout the marketing year. At each interval, current charts were shown and a news clip was read to give an idea of the psychology and technical picture of the market, at that time. In one of the target years, there was a brief time when the cash bid offered for corn made a sharp drop from one two week period to the next. In the teaching that went with the simulation game, I alluded jokingly to this as a good example of the term “crash”. Today, I am having a flash back to that example. It does not seem as funny as it did in that simulation game with phantom bushels and funny money.
The negative spread between old crop and new crop was bound to come together, eventually. It was just a matter of time. Farmers in those areas with cropping problems no doubt wish that the market would correct by having the new crop go higher. Instead, it is correcting by having the old crop come down. I use the term “is correcting” because the basis for old crop is still considerably higher than for new crop. There is still room for the new crop to drop or for old crop futures to rally back.
The cash bid for soybeans dropped $2.68, in three days, this week here in Cass County. It was one of the worst weeks since December of 1980, when soybean futures were limit down nine consecutive days. It is difficult to comprehend that kind of marketing action with a lot of time before the end of the growing season. For those who doubt the validity of what has happened should remember my theory that delayed planting and cool weather seldom bring about a permanently positive change in grain prices. I have mentioned that theory several times in earlier columns.
It is also a good idea to understand the Murphy’s Law “When the market is wrong, it does not pay to be right”. The market does a remarkable job of discounting fundamental factors that the public does not see. The public can comprehend that there has been very little rain at my farm in the last month. However, it does not do as well in understanding that conditions are ideal for efficient use of the little rain we have had or that the subsoil was saturated in the middle of June.
I updated my long-term soybean and corn futures charts, this week. They show good odds of a rebound in late August and early September and again in early December. There is no guarantee that this year will follow the chart pattern. However, if farmers are right and the market is wrong, it will probably show up in those time periods. My updated charts will be on my website, www.soyroy.com, early next week.