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Not necessarily so!

Agriculture.com Staff 12/18/2009 @ 8:04pm

For the past few months, the prevailing attitude in the soybean market is that prices will go down once the South American crop becomes available. This logic makes a lot of sense, but it is not necessarily so. As I have studied seasonal price patterns over the last 20 years, I have discovered some things that do not usually play out as logic dictates that they should.

One of these is the famed "Dead Cat Bounce." Logic would say that in years of a big harvest, prices should drop as harvest progresses. In fact, just the opposite is true. In about 80% of years, prices rise as the crop is harvested. This year is a perfect example of that irrational price move. In the face of one of the largest crops in history, the cash soybean price at my local elevator went from $8.31 on October 5 to $10.10 on December 16.

Another example of illogical markets could be playing out from now through spring. Logic would say that with the largest southern hemisphere crop in history about to become available, prices should drop. However, I have observed that, as the South American crop has become a larger portion of world supplies, the trend of soybean prices in the United States has become more positive.

To research this seeming inconsistency, I looked at the chart of May soybean futures from 1992 to 2001 from my website, www.soyroy.com. I compared this to a chart of the ten most recent years, 2000 through 2009. The charts from the earlier period show a flat market from early October through the end of February. I called the low in February the "John Deere Low." There was then a slight up trend from March 1 through the end of April. The total price increase was approximately 25 cents from just under $6.00 to about $6.25.

In the most recent 10 years the low is still in early October. The average price is around $6.35. The John Deere Low has almost disappeared. The average high in April is now roughly $7.35, or a dollar a bushel above the harvest low. That makes the average move from the beginning of harvest through the end of April four times as large as it was 20 years ago. Not only has the price level changed, but the trend has also changed.

None of this says that the soybean price has to rally after the first of the year. However, it does say that even with the southern hemisphere crop soon to be harvested, the price does not automatically have to drop. The only explanation I have for this illogical price pattern is that the trade is now more sensitive to production problems in Brazil and Argentina than they were when their crop was less important to world supplies.

The key is to stay flexible in your marketing plan. If you are sold out and the price continues to make new highs, using the rally to forward price 2010 crop beans at this level or higher makes a lot of sense. Prices today make this less of an issue than it was earlier this week!

For the past few months, the prevailing attitude in the soybean market is that prices will go down once the South American crop becomes available. This logic makes a lot of sense, but it is not necessarily so. As I have studied seasonal price patterns over the last 20 years, I have discovered some things that do not usually play out as logic dictates that they should.

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