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Time to take 'cookies' in the beans?

08/23/2013 @ 2:19pm

My column was missing last week because Sharon and I spent a week of vacation in Colorado. The Front Range has been one of our favorite destinations since I was stationed at Ft. Carson in the 1960’s. We were not in an area that suffered from the flooding. However, the green conditions of the crops and pastures showed that most of the land in Western Nebraska and Eastern Colorado has been getting some timely rains.

I wish I could say the same for my farm. The .6 inches that fell August 15 was the first substantial precipitation since June 25. Crops are still green but they have to be suffering damage from the long dry spell.

From a marketing perspective being gone the second week of August is probably not a good idea. Modern electronics make it possible to keep up on the markets regardless of where one travels in this country. The reason that this is especially important is that one of the most reliable seasonal moves on the long term soybean futures charts comes between August 1 and September 10. I call this move the frost scare rally. Most years market prices drop following the July 4 weekend. By the time another month has passed prices are usually considerably lower than they were at the beginning of the month.

Sometime around August 1 traders start to get concerned about the possibility of some type of production problem. Sometimes it the possibility of early frost in northern states, hence the term “frost scare rally." Sometimes it is dry weather in western areas like Kansas and Nebraska. Sometimes it is anticipation of yield loss from delayed planting in areas like Ohio and Indiana. A combination of these factors such as exists this year is especially potent. When these factors become known the results can be exciting as they are this week. As this is being written on Friday morning soybean futures are 36 cents higher for the day.

Corn futures usually follow a similar pattern. In recent years the pattern in corn futures has become closer to that of soybean futures in August and early September. The thing to beware of is that for both crops prices commonly move lower again following the September crop report. That makes the current rally a good time to sell both soybeans and corn. This is especially true for that portion of the crop that farmers anticipate taking to market at harvest time. In most years selling on the frost scare results in higher prices than selling at harvest.

While this rally could be the beginning of a long-term bull market, odds are that it is a short-term move. Odds are good that prices will trend lower as harvest gets underway.  Selling an increment between now and September 10 makes a lot of sense.  With soybean futures over $13 there is down side price risk. 

One of my Murphy’s Laws says “When the plate of cookies goes around the table, be sure to take a couple." I cannot guarantee that this year prices will follow the normal pattern. I can guarantee that prices today are higher by more than a dollar than they were the day we left for Colorado. Those cookies are starting to look very tempting!

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