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With markets, timing is everything

02/07/2014 @ 2:41pm

There is an old saying that the success of a rain dance has everything to do with timing. Meaning that if you start the rain dance just as the rain begins, you can be pretty well guaranteed that some rain will follow. You could say the same for predicting the direction of grain prices. 

When an unexpected move takes place in the direction of price movement, it is easy to look back and see what brought about the change. It is much more difficult to predict when the change will take place. Marketers have their favorite methods of determining when it is appropriate to sell and when it is best to wait.

Personally, I use long-term seasonal price charts to predict when markets are most likely to go up and when they are more likely to drop. Prices move in the expected direction about seven years out of 10. The seasonal trend charts treated me pretty well in making sales of the 2013 crop soybeans. They did not do as well in the corn market.

There were opportunities to make sales in the April-June time period. Unfortunately, I ignored those times and did not make sales then. The next period of good prices centered on the September crop report. Selling immediately before or after that report resulted in the highest price of the year. For those beans not sold around September 10, the dead-cat bounce produced several price peaks that allowed me to get beans sold before my drop-dead date of December 31. Now that the 2013 crop is harvested and put away for the winter, it is easy to become distracted with marketing and forget about needing to watch for opportunities to make sales.

The price was headed for $12, in the last week of December. Likewise, cash corn dropped below $4 briefly after being in a downtrend for most of the last half of 2014. January however, brought a surprise. Instead of trending down through most of the month, both grains caught an updraft in psychology and ended January higher than they began.  

This seemed to be a surprising turn of events. However, when I took a hard look at the long-term charts mentioned earlier, I discovered that bullish action in January should not have been a surprise. The soybean chart shows a very short quick downtrend ending with a minor low around February 14. In prior years, I called this move the John Deere-low because it was timed approximately when machinery payments were due on March 1. While machinery notes are no longer due on that date, the negative psychology persists in the dead of winter. In March, the trend turns higher until April 20. This bullishness shows in the face of the expectation of a huge South American crop.  I cannot guarantee that prices will follow the normal pattern this year. Trading of the past week certainly shows that it could happen. At the very least, it should be a warning that farmers should not get too negative in their soybean price outlook.

The long-term price outlook for corn shows very little probability of futures having a dramatic upturn. However, if futures stay the same and basis improves, the carry between March futures and July futures will at least offer a small return from storage. Since January 1, the cash price at the elevator in my community has improved 18 cents. As with soybeans, the price action this week should be a warning not to be too negative.

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