Don't be impatient!
After watching soybean prices drop two dollars and a half in a month, farmers are understandably anxious for a rebound. I had several calls this week asking if the harvest low is in. Surprisingly, most were looking for a signal to buy soybean futures to replace sales made earlier.
The dead cat bounce is a good tool for making cash soybean sales. It is not as good for picking a bottom to buy futures. In order to profit from a long position, there must be an uptrend in prices.
Looking back and seeing ten trading days off of a harvest low has much better chance of success than looking forward and trying to predict when those ten days will occur. After this week’s market action, it is obvious that three days higher does not constitute an uptrend.
It is time to be patient! In last week’s column I mentioned that my research had shown that there has been a harvest low in October every year since 2001. What I did not tell you was that there were instances of prices rallying for two or three days and then making a lower low later.
Seldom does price action follow the same pattern two years in a row. There are numerous examples of a price peak followed by another break and then a new peak a month or so later. Picking a harvest low is a tricky business. On the other hand, if a cash sale is made following a ten or fifteen day rally, at the very least the return will be whatever the price improvement has been up to that point.
Looking back has better odds of success than predicting the future. The seller has the advantage of looking back and seeing how much his or her profit has been for being a good marketer. In almost every case, there will be some basis improvement in addition to the futures rally as harvest winds down.
At the farmers breakfast meeting this morning at my local café the talk was about this year’s crop yields. Those in attendance were disappointed with soybeans that were yielding in the 45 bushel range. There was adequate rain in August and most of the beans were planted early. Growers anticipated a 60 bushel average.
They said that the processor in Council Bluffs has no waiting lines, which is unusual for this time of year. Some off the shortage is no doubt due to the Missouri River flooding. However a greater part of it surely is the result of yields lower than expected. It will be two or three days before my 3.7 maturity soybeans are harvested. I am anxious to see if they are as good as they look. Rain is predicted for this weekend. Maybe he added moisture will help the yields!