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SoyRoy: Tracking the Dead-Cat Bounce

An important file from my portfolio of always/never strategies says to forward contract soybean futures the day before the release of the September crop report. It is simply a matter of selling while the market is open the day before. The implementation has changed somewhat in recent years now that the board of trade has changed the release time from 9:30 to 11 a.m. Nonetheless, it should be so simple.

My marketing plan for the 2016 crop is considerably smaller now that I have retired from active farming. My total now consists of my half of the crop from the small acreage that is rented to my tenant. My approach to selling the crop was to price 20% of the beans between May 1 and June 15. Another 30% would be sold on the day or days before the September crop report. The last half would be priced after harvest using the dead-cat bounce.

From the beginning, the market was very good to me. Through most of May and the early part of June, soybean prices were in an uptrend. The old principle “the trend is your friend” made procrastination work in my favor. I finally sold the first increment in mid-June for $10.14. As you can imagine, I was really happy to get the sale made over $10.00 cash.

Selling the second increment did not go as well. By then soybean futures were much lower. I was not as optimistic about getting a profitable price. In any market, prices go up and down. I expected that to be the case as the September crop report became imminent. Unfortunately, the up and down movements did not follow the pattern of the long-term chart. However, the movements were volatile enough that it appeared there was a chance of getting my beans sold at my second target of $9. After the market closed on September 8, I entered an order to sell at that level or higher sometime in the future.

My price target was too high. The sale did not get done at that level. The next day was even worse as the price dropped far out of range. I like to utilize standing orders, or good-till-cancelled orders, because they do not require the seller to watch the market continuously while the trading is going on. They also allow the seller to set the price level for the sale. The price can be set at a price higher than is quoted on the board. For a while it appeared that I was being greedy.

On September 12, my strategy looked better. At some point in the trading day, the market traded at least as high as my order, and the order was filled. That does not always happen. This time it was good for a narrow escape. However, the strategy of having an order ready to be filled, just in case, can allow the marketer to play a part in setting his or her price at a level that is higher than it otherwise might be. This week I began to record cash price for January as well as March futures. The purpose for the next few weeks will be to track the dead-cat bounce for selling the final increment as the crop comes from the field.

On the close of trading today, September 16, my targets look a lot more reasonable. Today’s market action gives me hope that there will be a rally of $.50 to $1.00 in the foreseeable future.   


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