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Capitalizing on market rallies: Keep your eye on the prize

Soybeans are the belle of the ball these days on the CBOT trading floor. At $12+ per bushel, it's encouraging a lot of farmer sales.

But watch out: Just as quickly as a market can shoot the moon, it can come crashing back down to earth. That's the mode of operation lately for the trade, especially for soybeans: Volatility. But, are these wild price swings good or bad for the farmer-marketer as opposed to the everyday CBOT floor trader?

"Volatility provides opportunity, the traders say. Right. If you're a trader," says Agriculture Online Marketing Talk member Jim Meade / Iowa City. "As a producer who is mainly interested in a conservative hedge of my crop, I don't see how volatility helps me. It helps me only if I turn into a trader and trade right."

Not so fast, though, says Marketing Talk member GoredHusker. If you can see the price-swing trends coming, you can react accordingly and provide yourself an ample trading hedge, he says.

"When the commodities are volatile, it means they run from one extreme to another causing commodities to get too cheap and too expensive. I prefer to sell my crop as a hedge when they run them into the too-expensive category," GoredHuskersays. "Your banker may not like volatility, but in the end I believe it actually helps those who truly are trying to hedge. If there wasn't much/any volatility, there really wouldn't be much of a reason to hedge as prices would remain relatively flat."

Pegging when the swings are going to take place isn't easy. That makes it important to take advantage of good prices when you can, even if you don't nail that single price that ends up ultimately being the top. That's why it's important to keep your eye not just on the direction of current pricing alone, but also the factors that go into making those prices, says Scott Stewart of commodity marketing firm Stewart-Peterson.

"All good things typically come to an end. History shows that you give back a good percentage of the rally within 6 weeks, and within 6 months, you give back majority of gains," Stewart says. "People have to be very cautious -- if you look at the sesasonality of the grains, we're looknig at a down time for the grains, so the odds of prices going down start to get much greater than going up, and bit by bit, will start moving that direction. If crops all get into the ground and start growing well, downside potential just grows by the day."

So, for now, Stewart advises a "sell and defend" strategy where you can take advantage of current high prices and help protect yourself from downside risk.

Stewart talks about the current price trend in the soybean trade, some ways to trade that trend and when and where he sees the market turning in the future.


Soybeans are the belle of the ball these days on the CBOT trading floor. At $12+ per bushel, it's encouraging a lot of farmer sales.

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