Soybean Bounce: Is It Possible?

This is the season when marketers who have been following my seasonal patterns in the soybean market look for clues to tell them when it is the right time to pull the trigger on new-crop forward contract sales of soybeans. In fact, this week I started tracking the fall cash bid at my local elevator and the closing price of March futures, looking for a sell signal in my own marketing business.

The question that has been asked several times as soybean futures rallied in the last week was, “Is it possible that we are seeing an early harvest low and that soybean prices are getting ready to head into the dead-cat bounce?”

My response to that question is that anything is possible. In studying the long-term charts, there is a sharp downtrend from the frost scare in early September through the harvest low on October 2. In reality, the market rarely is so predictable at that time. The harvest low usually comes in early October. However, it has been as late as November, and it's been as early as the second week of September. Last year, 2014, there were two harvest lows. One was right on time – coming in early October. The market went through all of the normal moves at that time, going up for three weeks and almost a dollar a bushel over the harvest low.

Prices then dropped back to below the level where they'd been. This fake-out was followed by a bounce that ultimately terminated at a new high. While this was confusing to say the least, it did give marketers additional time to make sales. These sales were made at prices higher than the top of the first bounce. The dead-cat bounce that year illustrates why it is important to follow the factors that define the bounce closely.

That brings us to the current state of the soybean market. First of all, the rally off the harvest low usually includes basis improvement. That has not happened yet. That will definitely be one of the things I watch as harvest gets into full swing. The most important numbers are the extent of the rally above the harvest low. To be a true bounce, it must last at least three weeks. In the recent November soybean futures rally, the prices went up approximately 28 cents. In a similar period of time, December corn futures went up 24 cents. While these moves are in the right direction, neither of them was big enough or lasted long enough to trigger a sell signal.

Possibly the most important factor is the action of the soybean market on Friday, September 18. That day, the soybean futures dropped 17 cents. That took out of the picture most of the gain of the last several weeks. The rally in the corn market held together pretty well. However, having a drop of that magnitude in soybeans makes me think that I will have to start counting days again this coming week. Price action such as that on September 18 is common at this time. Marketers should not give up on the possibility of a rally of a dollar or more before winter. However, it may take a lot of patience before prices  reach a level that is attractive.