Melvin Brees
Farm Management Specialist
University of Missouri Extension




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January 7, 2000

July in January?

We generally expect weather to affect the soybean market in early July. A seasonal peak in soybean prices often occurs in late June or early July based on dry weather concerns. Comparing the South American growing season to our season, it's July in Brazil and many areas are on the dry side. A good Brazilian soybean crop would add to already large supplies. However, a reduced crop, in the face of strong demand, could quickly tighten supplies. Prices rally on less than expected rainfall, dry weather forecasts or reports of crop stress. Prices also drop sharply with the forecast of even scattered rainfall in Brazil. This produces an uncertain price outlook and plenty of market risk for all of us still holding soybeans.

The domestic soybean market situation isn't clear either. The '99 crop was large. Demand is strong, but weekly exports have been variable. It appears that the LDP has been claimed on a large part of the crop, much of which is still in storage without any downside price protection. Large movement of this grain could quickly depress prices. Hopefully, next week's USDA reports will shed more light on these factors.

Which way will prices go? Nobody really knows! While there may not be any "best strategy" to deal with uncertainty and what are still low prices, the price risks need to be recognized and managed. If you haven't collected the LDP, it still provides downside price protection. If your grain is under loan, the 60-day repayment option could allow you to lock-in a low repayment price and capture a weather rally.

Decisions become much more difficult if you've already collected the LDP and are storing unpriced soybeans. Volatile markets move very quickly--making opportunities very short lived and prices can drop sharply before you can complete a sale. The risks are even greater if you need to move grain soon in order to meet cash flow needs. Volatile markets also limit the use of commodity options for risk management. While they limit risk, at-the-money July soybean option premiums are now more expensive than commercial storage costs

In this situation is it very important to follow the markets closely. One strategy is to use technical support and resistance prices to set pricing goals. If prices break through upside resistance, it may signal the beginning of a significant rally. Failure to break through resistance levels or a break below a support price often signals lower prices ahead. Resistance prices can also serve as upside price targets and support prices as downside "bail out' prices.

Brazilian weather is helping to produce a July in January market. There may be some "glimmers of hope" for prices, but there is also a significant risk of low prices getting even lower. A weather market can move quickly, but a sustained rally may be several months away. It's a difficult situation that you need to pay close attention to. Consider the risk; be flexible and prepared to react to changing conditions quickly.

-- Melvin

University of Missouri ExtensionDecisive Marketing - January 7, 2000 -- Revised: April 20, 2004