"Why is it that prices are always low when I need money?"
That question has been asked in several different ways at seminars during the last 20 years. The sad-but-true answer is that, when most farmers need money in the same month, and a lot of soybeans are sold in a short period, cash prices go lower. This often results in a lower futures price and a wider basis during that crucial period.
October is usually the worst time of the year to make cash soybean sales, with February a close second. A review of prices during the last three years shows that February is often at or close to a secondary low. Selling during February and early March is to be avoided unless prices are in a counter-seasonal rally and your profit target is hit.
A review of the Chicago Board of Trade (CBOT) weekly soybean chart over the last three years illustrates the point very well. In 1995, soybean prices opened February at $5.47, then rallied mostly higher for the next two years. The February low at $5.47 was followed by a 71 cents rally by the middle of May 1995.
In 1996, soybean prices were sliding lower during February, with the actual low coming during the week of March 17. From that $7.06 low, prices traded to a high at $8.39 just six weeks later. Any February sale looked low by early April.
In 1997, the early February low at $7.28 was followed by a $1.75 rally to $9.03 by early May. I'm not forecasting a rally of that magnitude this year, but just as in 1995, holding on until April-May is likely to pay big dividends.
All commodity traders, chartists and many farmers are aware of certain key dates when a high or low price can be anticipated. One key date to watch is Friday, Feb. 20. This is the day that options on March futures contracts expire. The unwinding of options (calls and puts) can create a market spike up or down.
The last trading day of February - Friday, Feb. 27 - is the first-notice day for March CBOT futures contracts. In other words, if you stay long in March CBOT soybean futures from Feb. 27 into Monday, March 2, you risk having 5,000 bu placed in a warehouse in Chicago and paying all of the delivery expenses. A large percentage of traders always sell out long positions prior to first-notice day. That liquidation usually takes futures lower.
Both of the dates I have mentioned are usually lows, so you can see February is often a poor time to sell.
If you need to generate money from soybean sales during February or early March, here are some alternatives to consider. First, be willing to sell ahead - during the seasonal rally that usually occurs in April through July of the previous year - for delivery in February or early March. Quite often, sales made in late November or mid-January are better than waiting until the last possible day.
A longer-term solution may be to change when your payments are due. Since prices are usually high in April-May, set up your payments to come due then. This may not work in 1998, but consider making that change in 1999.
Keep in mind that, with February being a poor month to sell because of low prices, there's opportunity to use the month as a key time to buy soybean seed, soybean meal or call options on July soybean futures. Do not let negative news or price action during February panic you into selling.