Big Price Moves in Soybeans
Nov 04, 2009
The soybean market is not for the faint of heart. Granted there are good opportunities for the short-term day trader if following a very focused time count. The problem is its hard work and just when you feel a pattern is emerging the market can throw you a curve ball. Right now aggressive management of cash flow risk is critical. We would strongly encourage small positions with big reserves to back up position. This is not a time period to be a cowboy and go for the big moves.
As for the producer with no carry in the beans, anybody placing harvested beans in the bin is betting on an absolute flat price rally with no significant storage or basis gain. So you are putting up 100% of the equity which is significantly more expensive than selling the cash and putting on a very ridge long position.
As producers, I know your attention right now is on getting the crop out of the field. However you must realize this could also be a great time to be making decisions about the 2010 crop. Granted the Chinese are going to continue to buy our beans until the South American crop comes in but after that they are going to be looking hard down south. With acres up, it all comes down to what type of production season they have in producing beans. If its good, beans are going to trend lower and if it’s bad, the market could explode. I know the thought of $12 plus beans is exciting but I don’t believe, as a producer in this time period of significant uncertainty about the health of the U.S. and the global economy, one should take all the risk. Instead the basic concept of being open on the cash but putting a $2 floor under the market and obligating a sell if the market rally above $12 is still preferred. If the market does go from $10 to $12, a gain in the cash of $2 is made minus basis adjustment.
As for those speculators out there who always like being long beans I would challenge you with this thought. If you want to be a bull to beans because of inflation why not go directly to the commodities that will be bullish like gold and crude oil, rather than buy beans? Be a bean hedger and speculate on inflation in outside commodities.
Special note: I’m will be on the road this week traveling down to Sarasota to set up my winter office. I will try reflecting on what I’m seeing in my Wednesday copy. If you have any questions that you would like address just give us a call at (800) 832-1488.
If you need any help in implementing a speculative or hedging strategy give us a call at 1-800-832-1488 or email me at firstname.lastname@example.org
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