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256369

Risks of Selling Based on Long-Term Seasonal Trends

There are two possible risks for individuals using the long-term seasonal price charts to trigger sales of either soybeans or corn. The first and most obvious risk is that the seasonal trend that we are counting on for our sell signal does not happen. That happens occasionally, but rarely. I use the general rule that soybean prices will follow the normal pattern 60% of the time. In other words, our sales decisions will be correct six years out of 10. They will generate losses 40 years out of 20. My bias is that the odds of a profitable trade based on the seasonal pattern will take place 12 years out of 20.

Experience tells me that odds are improved when the seasonal trends are overlain with some other technical strategy. The possibility of using moving averages of some other trend following strategy conjunction with the long-term trend will improve the performance of the strategy. The best results come when the multiple systems are used to trigger selling of the cash commodity. For those individuals reluctant to forward price commodities that they have not yet harvested, selling based on long-term trends in combination with a long-term moving average does a good job of removing the reluctance to forward contract.

Several years ago I did an extensive study on using long-term moving averages to trigger cash forward contract sales. I found that the optimal length of moving average was 15 days and 45 days. In other words, a sell signal could last for nine weeks before it triggered a sale. While that might be too long for the average trader, it might just fit the average farmer who wants to be very conservative in dealing with something as volatile as soybean futures.

On a side note, at harvest last fall I put the bushels of corn in commercial storage with the intent to sell them on a DP contract when they became available. My thinking was that it would not take long for prices to improve enough for me to benefit from storage. Was I ever wrong. The last two weeks of February, the market gave me enough price improvement to encourage a sale. I finally got the corn sold for $3.22. I thought that would be the worst price of the season. It now looks as if it might be close to the highest price of the year. At least the price was high enough to pay the $.04 DP charge. It ended up being over $3, which was my target. I wish for better results for the corn in storage on my farm.  I hope for the normal spring rally to help us all out.

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