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A July soybean rally

07/12/2013 @ 10:00am

One of the main theories behind my long term seasonal marketing approach is that the July 4 period is pivotal to the direction of soybean and corn markets. If you have been reading my columns for any length of time, you understand that in many years markets do something important either just ahead or just after the long summer holiday weekend. The odds favor prices dropping during the month of July. However, about one year out of four prices rally in July instead of dropping. Sometimes this time period is the beginning of a major up trend. That was the situation in 2012 in response to the extreme drought that summer. 

Two weeks ago, it was difficult to imagine that anything would cause prices to rally. Markets ignored delayed planting problems that had persisted in some of the best crop growing areas in the world. Time seemed to be running out on the possibility of a summer rally. Even the report that was released on Thursday July 11 did not offer a lot of encouragement. Stocks numbers of both soybeans and corn were perceived as bearish soon after the report. Those numbers seemed to indicate that there would be grain to use before the new 2013 crop becomes available. 

Nonetheless, the response to the recent numbers was to continue the minor rally that began the day after July 4. Since that day, the December corn futures have gone up from 4.91 to 5.33. November soybean futures have gone up from 12.28 to 12.90.   No doubt, a big part of that improvement was brought about by dry weather in many areas. That is just the just the opposite of what most farmers thought a month ago. It is difficult to comprehend that the weather could turn so fast. However another of my theories is that the weather usually does not change gradually. 

In other years, I have seen the weather turn from one extreme to the opposite in a very short time. Here in Cass County, the moisture deficiency was corrected in May and the first half of June. In the last two and a half weeks, we have had only a quarter of an inch of rain. The soybeans show stress in the middle of the day. The land that was reclaimed from the Missouri River Flood of 2011 is so hard it is difficult to get a soil sample. The corn still looks very healthy with tassels just starting to show. However, the timing of this dry spell does not bode well for good pollination. 

All of this makes me wonder if this is the one year out of four that the trend in soybean prices will turn up in July. The five day rally so far is still too short in duration to call it a change in trends. It is a weather rally for sure. If your marketing plan includes selling new crop soybeans or corn on a weather rally, here it is! Can prices go higher? Of course. However, there is still down side risk as well. Calculate your potential breakeven price based on current yield potential. Based on that number be ready to sell when the price gets to your target. I prefer using futures or hedge-to-arrive contracts that leave the basis open. Chances are good that new crop basis bids will be better by the time harvest is over.

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mark guildenzoph 07/12/2013 @ 10:46am Well 20+ cents down is not showing signs of a continued rally. I sold 7 dollar corn in may and 16dollar soybeans in April so I would say that this market is terrible. Late planting and weather issues all over the corn belt makes me believe that this will also be a poor harvest. However every time a report comes out it seems it doesn't matter what the crops are doing everything is speculation. There is no reason for the rally except that the prices should have never fallen this low to begin with. It will be hard to break even with prices this bad its a good thing no one I know even has any grain to sell. With the stock piles thinning hold on to your hats because I for see a lot of disappointed farmers with the conditions of the crops for this harvest.

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