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Surprise! A rebound-Roy Smith

07/08/2011 @ 7:02am

Last week, I discussed the bearish crop report and the possible affects on grain prices. I warned that there was a good possibility of a 50 percent retracement of the move down some time before harvest. Little did I realize that it would come as soon as today! The July 4 weekend has a tendency to be turning point in grain markets. Most often the market is in an up trend going into the holiday but then drops the following week or weeks. About three out of four years prices follow that pattern. Other years process drop going into the long weekend and put in a bottom followed by higher prices later.

The situation is confused this year because corn prices have had a long term up trend for several months but a short term down trend the last few weeks. My question before the report last week was which of the trends prices would follow. Would the long term trend higher finally be broken or would prices rebound following the short term down trend and make a retracement. Action this week indicates that the latter is the case.

Now that we have experienced the recovery of most of the price depreciation from before the June report, the question is what to do now. Contrary to my drop dead rule, I still have about 10 percent of last year’s crop left to market. In my June newsletter  I mentioned that there was the possibility of a squeeze in the September corn contract. That seems more likely now with the cash bid here in Eastern Nebraska at five cents under September futures. Maybe this will be the year that holding corn until August will be a profitable strategy.

A comment by a market analyst that a major commission firm is recommending to their clients to buy soybean futures is further fuel for the bullish fire. It seems unlikely that the news from speculative firms would be so negative last week and so positive this week. It is their money. I guess they can do with it whatever they want!

The long term seasonal charts show a down trend through most of July and August. However, there is almost always a rally some time during this period. When it comes depends on weather and the psychology of traders. We already have less than perfect production conditions. Farmers who have traveled around the country tell me that the crops in eastern Cass County look as good as anywhere in the country. That is notwithstanding the acres under the rivers, of course. Maybe traders are coming around to most farmers’ opinions about crop condition and the move this week is just the beginning of another cycle higher. I hope that is the case. I still have new crop grain to price before prices head into the tank-again.

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