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Market Plus: Jul 15, 2005

posted on July 15, 2005


Market Plus: Jul 15, 2005

Swalwell: Welcome to the Market Plus page, Market to Market. This is Rick Swalwell sitting in for Mark Pearson. He'll be returning next weekend. With us today is John Roach, our long time analyst. John, nice to have you with us.

Roach: Thanks, Rick.

Swalwell: And we're looking at a market currently where the weather was impacting beans and corn with corn up and beans not doing so well. Let's begin the discussion talking about the historical significance of the current pricing levels that we're looking at.

Roach: The approach that I have to markets, first of all, it's a long-term approach. Farmers are in that business for their entire lifetime and yet for most farmers they only look at marketing the crop that is in the field or perhaps only the crop that is in the bin. One of the things that we learned some time ago is that there are some historically significant price levels that the market seems to get up to that price level and hesitate and then many times fall back down below. Now, if there is the right stimulation you could get up maybe to the second layer of pricing and then stall out and fall back down. And what we've done is over the years we've looked at those historical prices and then kept track of them and we reached one of those historical significant prices. And if you want to see this in more detail you can just go to Google and just type in historically significant prices. But what you'll find is that November soybeans can get over $6.50 fairly frequently actually. But they have a hard time getting much higher than that and they have a hard time maintaining it. The second level for November soybeans is $7.20 and then it just goes on up all the way up to ten dollars. There is actually six levels. In the case of corn, for December corn the first level is $2.70, the second is $2.95 and the third is $3.20. Again, six levels. And if you look at the research, if you were to sell a small increment of your crop at each one of those significant price levels the results have been just excellent over a ten year period of time or a twenty year period of time or a twenty-five year period of time. It's just been excellent results. So, the first thing I think a farmer needs to look at is are our ways to make sales, preferably in an elevator if you can do it with a basis not fixed, hedge derived kind of a contract, starting those sales right now on beans and being ready to make sales on corn next week for your '06 crop and your '07 crop if you reach those threshold levels. That is the easiest marketing thing I know to do, much easier than trying to guess where the weather is going to top this current market out, the nearby market. The only thing we know for sure is that next year's crop is still safe, it's not going to be planted for another ten months or so. So, we don't have to worry so much about the weather issue there.

Swalwell: I guess that was kind of a question that came through my mind while you were describing that, is there any kind of a time cycle associated with these historically significant pricing levels?

Roach: Well, we think there is a definite time cycle or a timing period for marketing grain. If you look at the average cash grain, average prices over the last ten years clearly the highest prices fall in the month, the highest average prices fall in the month of March, April, May and June. So, we like to focus a lot of sales during March, April, May and June. Now, this year those sales were very good. However, that selling season is being prolonged by this weather. We're in this weather problem that we're having so now we're getting even higher prices in July because of specific weather situations. But if producers will, first of all, look at those historically significant prices and secondly focus a lot of their sales in March, April, May and June. Third, avoid any sales in October and November. That is the two lowest months of the year whether it be corn or soybeans. And so those sales just have to be avoided. Then the third thing we look at are the sell signals. We use a technical indicator that gives us an overbought condition of the market and we like to sell those overbought conditions. And those, again, have been very helpful in taking some of the emotion and some of the stress out of the market and instead following a technical indicator that is a little more objective so it takes away some of that emotional issue.

Swalwell: John Roach, thank you very much for your comments and input there, very interesting. And thank you for joining us here on the Market Plus page of the Market to Market Web site. I'm Rick Swalwell sitting in for Mark Pearson. He'll be back next week. Thanks so much for joining us.

 


Tags: agriculture commodity prices markets news