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Second 'bean bounce' happened

12/07/2012 @ 2:26pm

I usually go back a couple of weeks to see what I wrote about prior to composing a column for the current week. Sometimes I will be right on the money comparing recent price action to my comments from earlier writings. Other times I will discover that I was totally wrong in my outlook. This week is one of those weeks when earlier musings had direct relevance to what is happening in the markets this week.

Two weeks ago I used words like “free fall” and “crash” to describe what had been happening in the soybean market. In other columns I had talked about the possibility of a second dead cat bounce and how unusual it was to see two in one season.

Price action in the last two weeks has caused me to have flashbacks to those earlier columns. In fact prices have retraced much of the earlier loss and have completed all of the necessary qualifications for the second bounce. The ten days higher rule was met on Tuesday of this week. Price action took prices above the 35 cent, 50 cent and dollar a bushel over the second harvest low levels to accomplish every factor necessary to complete the bounce.

The free fall that I had described earlier stopped. The second dead cat bounce did happen. The one thing necessary to take advantage of these positive developments is to sell the soybeans.

Probably the most frustrating aspect of the bounce strategy is that it does not give clear signals as to when to pull the trigger on sales. There are three possibilities to help solve this dilemma. First is that the bounce seldom lasts past December 31. That gives three and a half weeks to make the decision. Secondly I watch for worsening basis as a sign that demand is starting to diminish. So far there is no indication that is happening. With a positive basis at processors in Eastern Nebraska and Western Iowa, it is clear that buyers want inventory. It would be unusual to see prices drop under those conditions.

Third, in high price years such as we are now in, a dollar a bushel over the harvest low has been a good target for selling. The cash bid here at the local elevator on Thursday was $1.11 over the harvest low on November 16. This clearly exceeds the harvest low of $13.50 by more than a dollar.

I do not try to predict prices. I only point out factors that have worked to accomplish profitable sales in the past. The market can do anything it wants. Each year is a little different. It is up to the seller to make the decision on whether to sell now or hold for a spring rally.

In the last few years of prices over $10, hitting the spring high has been a profitable strategy. Only time will tell if that is a more profitable strategy this time around. Remember, there will be another crop harvested in Brazil and Argentina when it is spring in this country. This is not a time to get greedy!

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