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SoyRoy: Sell Soybeans Before September Report

07/25/2014 @ 11:02am

The long-term soybean futures charts show a sharp drop after the July 4 weekend. This usually ends sometime in the middle of July as the market gets oversold. It is normally accompanied by production problems that begin to pop up around the country.

For most of the recent planting season, there was an abundance of moisture in corn and soybean growing areas. Fears of delayed planting and flooding overshadowed any possibility of drought. This kept the downward spiral of grain prices in place through most of June and July.

Soybeans, earlier this week, proved that price movement can be up as well as down. In just two days, the price movement of November soybeans traded in a 50-cent range. It is amazing how there could be that much difference in such a short period of time. Understanding the psychology of this move illustrates what was behind so much volatility. For most of two months it had been assumed that rain makes grain. More recently there has been a perception that not all production factors are positive. Areas that had been getting adequate moisture are now becoming dry.

On my farm in southeast Nebraska, there were many small rains but nothing that could be called surplus. Rainfall in July has been minimal at best. The most recent rain we had was on June 21 with an inch and a half. Being more than a month ago, the precipitation was welcome. It has long since been used up. Wednesday, I heard the first comments on the radio that growing conditions are not as good as most folks had assumed weeks ago. I have been observing that pale grey-green color that soybeans get when they are moisture stressed. Most farmers have been anticipating a record corn crop. Even the local elevator is making a place to store corn on the ground at harvest. Record yields for soybeans are slipping away with each passing dry day.

If soybean prices follow the usual pattern, there will be at least one more up-and-down movement as market participants try to evaluate how much damage is being done to yields. The rally this week was right on schedule.  Bulls will say that Nebraska and Kansas are too dry, crops in the Dakotas were planted too late, and Ohio and Indiana are too wet. Prices will rally on these factors. Then, about the time of the September crop report, other experts will say that Nebraska and Kansas are always too dry, the Dakotas always planted late, and Indiana and Ohio are usually wet. On average, things are average.  About then the September crop report is released showing that indeed the crop is average or better. Prices go into the tank.

The strategy to take advantage of these psychological factors is to set price targets above today’s range at a price you can live with. If the rally this week does not go high enough to hit your target, there will almost surely be one later that will. A drop in prices following the September crop report is one of the most predictable moves in the soybean pricing year. Resolve to have that portion of your crop that goes to the elevator at harvest sold before the September crop report is released. Meanwhile, there is six weeks of trading to get something priced. There will probably be at least one more opportunity.

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