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Time to start counting!

10/08/2010 @ 12:50pm

At this time of year I get questions from farmers concerning whether it is time to look for the dead cat bounce in the soybean market. Until this week, I have replied that there has been nothing that even remotely looks like a harvest low. Until that has happened, there can be no bounce. This week the situation changed. The closing cash price on Monday, October 4 was 78 cents below the high on September 27. Coming as it did early in harvest and on almost the exact day shown on the long term charts, the close that day certainly qualifies as fulfilling most of the criteria for a harvest low.

I say it meets “most” of the criteria because to be a true harvest low, it has to be followed by at least ten days of prices higher than the close that day. Considering the bullishness of today’s government report, there is not much doubt that prices can continue higher than the October 5 close for another week.  

To track price movement during the dead cat bounce, I watch the closing price of March soybean futures as well as my local cash price. Of the two, the cash price is more important because it reflects basis as well as futures price. In turn, basis reflects demand for the actual product instead of demand from non commercial traders.

In addition to the number of days higher in the cash market, I anticipate that as harvest progresses, basis will improve. When basis stops improving, it is a warning sign that the top may be near. The basis has not started to improve locally yet, so there is plenty of time for prices to go higher before there is a big probability of the top being near.

It is difficult to set a price goal based on the bounce this year because the move started roughly a dollar higher than last year. Last year eventually saw the bounce being the greatest in the last thirty years. Before the season was over last year, the cash soybean price had rallied $2.35 by the middle of December. Initially I thought that the rally this year could not be that much. After seeing the numbers this morning, anything is possible.

My approach will be to watch the bounce for another week. If the rally continues I will look at the price on October 18. If prices are sharply higher than they are today, I will consider making the first sales. If the rally has paused, I will look for rebound and new high later. It would seem that a dollar a bushel is easily attainable. From there on, it is a matter of managing cash flow and making a judgment as to when enough is enough.

My chart of the 2010 dead cat bounce will start appearing on my website, www.soyroy.com, next week. Have a good harvest next week.

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