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Markets "fool the majority"

One of my favorite Murphy’s Laws says, “The market will do whatever is necessary to fool the majority."

That saying seems to be appropriate for Friday’s release of the government report. It seemed as if everyone I talked to about 2013 crop production was sure that production and stocks numbers would come in huge. In fact, grain yields in Nebraska for soybeans and corn were very good for both irrigated and grain-fed production. I was pleasantly surprised that even after two months with almost no rain and a terrible windstorm just as harvest was starting, production at or slightly above my long-term averages seemed like a pipe dream in the middle of August.

My perception was that by the time the combines rolled, a bumper crop was on the way. Consequently, the corn market had one of the longest and most severe sell-offs in history. By this week, I was starting to wonder if there were traders left to sell. The probability of price improvement seemed remote at best. But the market was setting up for what the analysts call an oversold rally. It seemed that, like almost everyone in the soybean market, I was scared of what the report would bring.

I have been in the grain markets long enough to recognize when my psychology has reached its limits. We almost got to that limit this week. Fortunately, my years of experience led me to read the long-term charts and the fundamental factors and avoid panicking at the wrong time.

When the report was released, the numbers were not as bearish as many thought they would be. Soybean yields were toward the lower number the trade expected. Projected carryover of cash corn  was below expectations. While the corn crop was still very large, at least there is some light at the end of the tunnel as far as demand is concerned. Meanwhile, soybean exports continue to be impressive.

The big question in farmers’ minds is what to do with the grain from the 2013 harvest that remains unpriced. The corn crop is big enough to prevent any huge rally that most would like to see. However, cash bids will probably follow the normal seasonal pattern of appreciation as the futures carry and basis improvement try to pull corn out of the bins.

Cash soybean markets reached a price level high enough to complete a second dead-cat bounce. All that remains to make that action complete is to have 10 days higher than the low on November 5. The close of the cash market today was 42 cents higher than the first harvest low on October. Sales anywhere in this general area will stop storage costs and interest charges. To reach the dollar level of the bounce requires 54 cents more rally before December 31. Time will tell if the recent report results in enough strength to reach that level.

A wise old farmer once told me to take a few cookies off the plate when prices are good. In other words, do not get greedy! Today’s soybean market might be illustrating the wisdom of that theory.   

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