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Pivotal time in the markets

06/28/2013 @ 3:35pm

The July 4 weekend is one of those important times in the marketing year for soybeans and corn that I call drop dead dates. It is a time when I take action in the markets regardless of the fundamentals or what the psychology of the market is at the time.

I never hold cash soybeans past January 1. I never sell soybeans in February. I never hold cash corn past July 4. If I am going to forward price new-crop grains, I want to have it done before the traders return from the holiday on July 5 or 6.

In researching whether this strategy is based on fact or fiction, I looked back at price charts for the last 10 years. With the advent of computer technology and Internet access, it is easy to test any marketing strategy for which a database is available.

In this latest effort, I discovered that indeed there is a tendency for prices to make a big move after July 4. The trend is usually down from now until September. Occasionally the market will play a trick on farmers and turn higher for the summer months. That happens often enough to make this a nail-biting time.

My suggestion for dealing with this risk is to carefully evaluate the production potential of the crops still in the field. Sell in increments to spread out price risk beginning around May 1 and ending July 3. Limit sales to a percentage of crop insurance coverage. Hold some bushels for sale the following spring or summer.

The drop-dead strategy is really very simple. The difficult part is dealing with the unknowns of weather and futures price patterns. I find that having price targets when I know that I am going to take a specific action makes it easier to implement that strategy. And, yes, I sold the last small increment of my cash corn last week, well before the crop report release today and subsequent price drop.

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