You might ask – why emphasize that this is a “brief” update on soybeans? A show of hands….how many of you would like to read an extended update on soybeans?
That’s what I thought, and hence the emphasis on the word “brief.”
In any event, as I wrote about here, soybeans have showed a seriously unfavorable seasonal trend during most of July into late August (down 30 times in the last 37 years). The bad news with any seasonal trend is always the fact that there is never any guarantee that it will work “this time around.”
On the other hand, noteworthy seasonal trends only become noteworthy because they are right more often than not. Plus – as I discussed in the original article – the “bad news for beans in July” theory makes intuitive sense simply because by mid-July traders typically have a pretty good idea of whether or not it will be a good year for soybeans crops. In addition, even in a bad year for bean crops (which equates to higher bean prices due to lower supply – you do remember that whole “supply and demand thing” right?), most of the “fear buying” and hedging has already been done by mid-July and as a result the “risk premium” tends to come out of bean prices to some extent even in a bad year for bean crops. So bean prices have a tendency to be “weak” from July Trading Day #9 through August Trading Day #6.
And some years bean price just simply fall apart. Like this year for example.
Figure 1 displays the November soybean futures contract starting at the end of July Trading Day #9 when it closed at 1025 (each point represents $50; also for the record a price of 1025 represents a price of $10.25 per bushel of soybeans). In the nine trading days since beans have plummeted to 933.25. This represents an open profit of $4,587.50 per futures contract.Figure 1 – Unfavorable Seasonal period for Soybeans looking, um, unfavorable indeed (Courtesy: www.Barchart.com)
If a trader is holding a short position in any size greater than a 1-lot I would suggest saying “Thank You” to the market Gods and taking some profits right here. Whether beans will be higher or lower by the end of August Trading Day #6 (the end of the unfavorable seasonal period) is anyone’s guess. But quick and easy profits don’t come along all that often.
Certainly not often enough. Can I get an “Amen?”