"Have you ever seen a year in which soybean prices bottomed at the Fourth of July, then peaked during the first week of November? To me it all seems backwards."
That was the comment from a frustrated Iowa farmer at the end of a seminar. I confirmed that it was unusual, but not unheard of, to have prices bottom when they often top, during the July Fourth weekend.
It is also very unusual to have prices peak in early November. The normal seasonal pattern, as illustrated in the mid-March issue of Soybean Digest, is to have prices bottom in late September through early October and then peak in April or May.
The unusual price action of last year is what chartists call a counter-seasonal move. Such a move doesn't happen very often, but when it does, we get a very powerful price move.
What caused this price action? The November rally was caused by global buyers purchasing soybeans to lock up cheap U.S. soybeans.
At the same time, U.S. farmers were reluctant sellers, pressuring prices higher. By late November, the financial problems in Southeast Asia turned into a full-blown panic. The International Monetary Fund pumped in some emergency credit; however, most traders now had to plug into their scenarios a big drop in ag exports to that vital region of the world.
Suddenly, with a large crop in the U.S. and a large crop growing in South America, there were plenty of soybeans in the world. Prices then dropped lower into the February-through-March period.
This price action has been frustrating for growers on two continents. A Brazilian customer explained how many Brazilian farmers had aggressively sold soybeans ahead in 1996 and '97. As soybean futures rallied higher in those years, they were forced to deliver on contracts that were 50 cents to $2 below the cash price available at that time.
In 1998, very few soybeans were sold ahead and Brazilian farmers were again frustrated as prices plunged lower into the February-through-March 1998 period.
After the violent price action of the last several months, odds are good that a normal, seasonal pattern will develop yet in 1998. This would suggest a rally in the April-through-June period with a low in September or October.
If the rally comes early, be prepared to make old-crop sales whenever your price targets are hit. If you need to sell off the combine, use the April-through-June period to make new-crop sales.