SoyRoy: Use Drop-Dead Selling Dates In Marketing Plan
If you’ve followed my seasonal strategies, for any length of time, you know that one of the main principles is what I call “drop-dead dates.”
You also know that I believe in certain strategies that I use, regardless of the supply and demand at certain times of the year.
For most of the months of May and June of this year, it appeared that this might be the year when the drop-dead dates would prove to be inaccurate and would lead to unprofitable trades. This was especially true for those who were using the dates for hedging or making forward-contract sales.
The idea behind this theory is that certain marketing moves are so reliable that they can be used profitably every year, regardless of what the supply-and-demand picture looks like. This year, 2016, the soybean market was on such a run that it appeared to be little risk that it would turn negative before harvest.
The market run was so strong that sellers found it difficult to make sales for fear of margin calls. They also saw the possibility of selling too soon in the event of a crop failure, and they did not have the means to sell what they did not produce. Making sales under these conditions takes self-discipline along with experience and knowledge of tools such as futures and options.
By the normal time for making new-crop sales around May 1, the soybean futures market was on the biggest roll that most of us have ever seen. The drop-dead date of July 1 seemed totally unnecessary. Trying to decide when the top would come in a market that was posting double-digit gains almost every day seemed unnecessary. In a market like this, every time you make a sale, by the time a few days passes, the previous sales look wrong. Sales made in April for $9 looked stupid on June 30 at $11.50.
Under these circumstances, self-discipline is absolutely essential. There is nothing wrong with riding a market up when it rallies as much as soybeans did this spring. A marketing plan under these circumstances is absolutely necessary. In the case of soybean futures in 2016, selling ahead when the charts showed a high probability of a price peak between May 1 and July 4 made a lot of economic sense. Any cash sales during that period looked good compared with the closing price today, July 22.
Over the years, having all of my corn and beans sold before July 4 has been a good move. Turning the position in my speculative account from long on July 1 at $11.57 to short on July 22 at $9.88 was good for a $1.69 of trading profit. I do not recommend speculating in the futures market. However, results in the market this year show the validity of the seasonal patterns and trends as a useful tool to making market decisions.
Likewise, having old crop sold and new crop forward-contracted eased my mind as to what to do with the 2016 crop, which is still in the field.