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Roy Smith: Seasonal highs, cash vs. futures
It is normal to see a seasonal high in the soybean futures market either just before or just after the September crop report. My rule of thumb is to sell cash soybeans the day before the September crop report to take advantage of what is usually a small rally and hopefully better basis than there might be once the combines get into the soybeans fields. It will be interesting to see this year if the basis premium continues to favor immediate sales over storing and selling. Market action in the next few days will be key to both how futures react and whether there is basis premium for immediate delivery once harvest begins.
I had the time this week to begin updating my seasonal charts for the coming marketing year. One of my techniques is to record cash grain prices at my local elevator and chart them for both the seasonal trends and to compare the highest returns for the year compared to the return from sales at harvest. I use the price for soybeans on October 1 and on corn November 1 as benchmarks. I compare cash prices discounted for storage and interest costs to the benchmarks.
It is enlightening to compare the highest cash price for the year discounting for costs to the October 1 price. It is easy to look back and see when the crop should have been sold. It is impossible to look ahead using historic prices and tell when sales should be made for the coming year. I have always believed that there is money to be made storing and selling cash grain if one knew when the top would come. The catch is that no one can predict the price peak with any degree of accuracy, even with all of the data available.
I the last 21 years the sale made at harvest generated the highest return only in 1990. For commercial storage, in the years of 1990 and 1991 sales made at harvest generated the most return. The highest return for both commercial and farm storage was reached in December and January in six years of the 21. The highest return was in May, June and July in 12 of those years. During the 21 year period the highest return was never reached in February, March or April.
In only two of the target years, 1992 and 2001, was the highest return in August. Even this year, with the strong soybean market of the last month, the highest return for the year was last December. The strategy of selling cash beans on the dead cat bounce proved to be a wise move as it usually does.
The month of July has the highest probability of having the highest return of the year. The trap that farmers get into by holding for the absolute high is that if it does not come in July, there is risk of the net return being less than what was available several months earlier. This can result in what I call “agricultural acupuncture”, or getting stuck with last year’s crop.
This is the time to make plans for selling the soybeans that you are going to deliver at harvest. Odds are good that making sales early next week will be better then selling after the combines roll. Odds are also good that there will be additional opportunities in November or December.
Next week I will take a look at the situation after we see the crop report. I will also have analysis of the cash corn market that I am working on now. Have a good week!