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Sell signals in soybean market?

04/13/2012 @ 9:52am

I own a few common stocks in my IRA account. The brokerage firm that handles my investments occasionally sends me an e-mail. I got one of those messages on Wednesday. It starts by making a recommendation to sell one of the stocks that I have held for several years. I was surprised because the stock has been performing very well. I was anxious to read what might have happened that would have put it on the sell list with the firm. 

Studying the three pages of information I was sent did nothing to ease my mind. The stock is paying a dividend of 4.9%. That is more than double what I can get at any local institution on a certificate of deposit or bond. The company has increased the dividend every year for 52 years. The price of the stock has gone up 11 % in the past year and 15 % since I have owned it. 

The narrative describes the company as low risk and working in a positive regulatory environment. Financially, it says that the risk is to the up side and that their debt-to-asset ratio is in line with other firms in similar businesses. All of this left me puzzled as to the change in status. Was there something hidden that I did not see? 

I asked the individual who handles my account why there was such a change in attitude concerning a stock that looks so good. His answer was that the investment firm thinks that the price is too high for the current conditions. Given that the price-to-earnings ratio of 17 is higher than competitive companies, I guess I can see the logic in their action. The question in my mind is that with a 4.9% dividend, if I sold that stock what would I replace it with? 

Mulling over this question in my mind, I wonder if there is a parallel in the current soybean market. Right now, the fundamental factors in the soybean price are almost all positive. Prices are at a profitable level. Demand is running ahead of supply for the immediate future. It is difficult to see anything that would bring an end to the current prosperity. One day the trend will change. There will be something that we cannot now see that will cause lower prices. 

April, May and June are the three months of the year with the highest odds of an annual high in soybean prices. Notwithstanding the excellent demand and other favorable fundamentals, if there is a blow off top the probability is good that it will happen by the middle of July. It will probably be caused by something that is not obvious until after it happens. Selling in increments beginning in April and having every thing priced by July 1 has been a very profitable approach in similar situations. 

In a bullish stock market, there is no new crop harvest to bring unexpected new supplies to sell. With corn and soybeans, there is always the next fall’s crop hanging over the market. In 40 years of farming, I have seen numerous price crashes caused by unseen fundamentals. The next time it happens I do not want to be holding the bag! 

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