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Roy Smith: Market crash?

In the original version of Winning the Game, we use comments from the commodity page of the Wall Street Journal as one of the factors that farmers could use when making out their marketing plan for pre- harvest grain sales. At one point, in one of the target years, the writer of the commentary used the term “crash”. If I remember correctly, the price move that accompanied the crash came in the middle of the summer after a nice weather rally.

I will admit that the same terminology crossed my mind yesterday after seeing the close on grain futures. Certainly, some of the same elements came into play. As I mentioned last week, the recent rally in prices has to be considered a weather rally. The volatility recently experienced is typical of a weather market. Prices reached a level that is very attractive, if yields turn out to be average or better. Farmers have been reluctant to make sales for fear that further weather problems will make prices shoot even higher. This is a normal response to a weather market. It causes most of us to miss opportunities for forward-pricing at very attractive levels.

There are factors that make me think that Thursday’s price action, while very frustrating, does not qualify as a crash. It was mostly in the corn and wheat markets. Soybean futures were hit, but not as bad. Most non-agricultural commodities closed higher for the day. The fundamentals for old crop grain remain very strong. Any drop in futures will probably be met with commercial buying to obtain stocks for the summer until the new crop becomes available. Improving basis levels indicate that there is still excellent demand for cash corn and soybeans. Unfortunately, that situation is not true for wheat.

Long term seasonal charts show that opportunities for hitting the spring high with corn and soybean sales diminish after the middle of May. This suggests that most individuals should be down to the bushels they are willing to risk on a drought scare in the summer. I am not ready to call Thursday’s price action a crash. However, time is getting short for seeing price improvement based on cold, wet planting conditions. The time to sell is frequently when most people are preoccupied with planting. It is warm and windy in southeast Nebraska today. Any rebound in Friday’s markets is a selling opportunity!


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