Selling beans on the bounce
Judging from my phone calls and e-mails there are a lot of farmers like me who plan to use the "dead cat bounce" to trigger further sales of 2012 soybeans. In my case it was more a fear of drought reduced yields than procrastination that has left me with less than half of my current crop of soybeans unpriced.
With little rain and intense heat for most of the summer, I quit forward pricing at what I thought was 20 percent of a crop. In fact with lower yields than planned my forward contracts turned out to be 40 percent of my production goal.
I could look at my situation as a mistake in judgment. However, with the production risk in non-irrigated Nebraska I follow a rule a very wise farmer once shared with me that it is better to be out of a market you wish you were in than in a market you wish you were out of. Another way of stating it is to never sell something you cannot deliver.
Now I need to set a price on the 60 percent of the soybeans that are in the elevator but not sold. Selling on the bounce is a good strategy since I do not have storage for the beans on my farm. Like many farmers I was eagerly awaiting the rally that would give me a few more pennies for my crop. I started tracking the price of March futures and my local cash bid on September 4. For a month both prices moved up and down, mostly lower.
The average date of the harvest low on the long term chart is October 3. For several days it appeared that the low price this year was going to be $14.78 on October 2. This would have been within a day of what was anticipated. The good times did not last! Prices dropped. They made a new low of $14.73 on Wednesday of this week. The question now is what to do about the new harvest low. The answer is simple. Start counting over, beginning with Thursday of this week being the first day higher.
Looking back at dead cat bounce charts of the last ten years shows that the price action this year is not unusual. It is common to see more than one try at completing the bounce off the harvest low. Many times the biggest jump is in the first few days. In 2009 the cash price went up $1.17 in five trading days. In 2003 it went up $1.17 in 21 days. In 2008 the basis went up $.60 from September 29 to November 4.
Response to the government report on Thursday may have been the spark that sends the price higher for the two weeks or more necessary to get the rally to sell in to. If the current rally does not last, there will be another harvest low and we will again need to start counting over. Every year looks a little different. I never anticipate what I think will happen. Count the days higher and the spread in price between the harvest low and where the bounce is on the current day. When the target is reached, make the sale. It sounds simple.
Until you have some experience, it is not!