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Murphy's Laws at work

03/30/2012 @ 6:41pm

The response to today’s government report illustrates some of My Murphy’s Laws for Commodity Traders. The first is “Be right; sit tight”. For those holding cash soybeans in storage or who are long futures, today’s markets are a reward for being persistent. Personally I sold all of my 2011 soybeans on the dead cat bounce before the end of the year. However, the speculative system went long on February 14 at $12.63. As this is being written futures are trading at $13.95. That is an unrealized profit of $1.32. I emphasize the term “unrealized” because my experience in the futures market has taught me to never count the profit until it is in the bank.

A second law that fits today’s market is “The market punishes those who make mistakes”.   For the last two weeks grain markets have been hit hard by liquidation. Cash soybeans at my closest elevator dropped $.51 in that short time as traders liquidated positions ahead of what they feared would be a bearish surprise. What they overlooked was that the big acreage of new crop 2012 corn has not produced a bushel of grain yet. Other fundamental factors remained bullish. The demand remains strong enough to produce anticipation of very tight supplies before the next crop becomes available.

A third law that applies to the report reaction is “What everyone knows ain’t worth knowing”.  It seemed as if everyone in the market except for farmers was convinced that today’s report would be bullish. They forgot that there are only so many acres that can be planted. This is clearly an instance of the crowd getting caught looking the wrong way.

Maybe the most important law that applies in this case is “When the plate of cookies goes around the table, don’t forget to take a couple”. There will be time to sell. It will be when everyone is convinced that there is no way to make grain supplies stretch until the new crop becomes available. Setting some reasonable price targets above the market and letting the price come to you is a logical way to take advantage of the today’s situation. Hopefully the fundamentals reported today will give us all opportunities for higher prices down the road. 

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