Roy Smith: Frost scare
This is the time of year that shows, on my long term seasonal charts, as the “frost scare” period. With the early planting and heat we have had so far this year, convincing the soybean markets of a frost scare will be tough. However, calling what usually happens this time of year a frost scare is really a misnomer. In reality, during the last half of August and first week of September, it is typical to see the soybean trade worried about a whole list of things that can go wrong with the crop during this critical pod-filling time.
For non irrigated farmers in the western Midwest, dry weather is probably more apt to cause poor yields than frost. Here in southeast Nebraska, we had hot weather with little rain for almost four weeks. Monday and Tuesday of this week we got almost an inch of rain. The amount depended on the location. While it will not make for a bumper crop, it certainly is better than four more days of heat with no moisture.
For parts of the soybean growing area, the concern is with diseases that could kill the plants prematurely or insects that could still damage yields and quality. Reports of Sudden Death Syndrome in large areas of Iowa illustrate how such things can be a market factor. There is no doubt that the disease has infested soybeans in that state. The questions are how much yield loss the infestation will cause and whether ideal growing conditions in other states will make up for the loss in Iowa.
It seems that every year problems pop up somewhere which cause farmers and soybean traders to worry about production. Seldom do there problems cause major yield losses nationwide. Reality strikes just often enough to scare producers into not selling as much of the new crop as they probably should.
The situation this year is somewhat unusual in that there has been a major rally in soybean futures during the early part of August. I normally would expect to see prices higher on September 10 that they are today. However, looking at the charts it is difficult to see how the recent price strength could continue for another three weeks. In the last week, futures prices have broken through a steep uptrend line that has supported the rally for several weeks. Maybe the frost scare, dry weather and SDS rally has gone as far as fundamentals will take it and prices will pull back for a few weeks before harvest.
On the other hand, here in southeast Nebraska soybeans for delivery in August maintain a premium of 52 cents over those for delivery in September. This is certainly not indicating an imminent collapse in prices. In fact, the last time we had a similar huge spread in soybean prices in 2003-2004, it was followed by a big rally after harvest. Stay tuned. I have a feeling that the fun is just beginning!