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Corn+Soybean Digest

Using Time, Price To Forecast Prices

Corn and soybean prices were volatile in 2002 with the largest price increase since 1995-1996. This allowed me to use all my price forecasting tools. These tools fall into two categories: The studies of time and price.

The study of time is the most reliable tool producers have. I use a combination of seasonal studies and number sequences, and look for when price moves in equal time patterns — high to high or low to low. These studies are not exact science, but do project key Change of Trend (COT) days and weeks in advance. At times these different methods all project key COT weeks, which increase my confidence that a major change will occur.

Seasonal studies suggest that the lowest price for soybeans will come during the harvest glut. With the increase in South American production, we now go through two key harvest lows.

In years of large crops, look for a seasonal low in soybeans in late October to early November. The South American harvest low is usually in late February to early March. Unless you have a small crop and high price in these time windows, they are key times to avoid sales.

A farmer at a recent seminar remarked, “I don't need help with the lows, I need help finding the highs.” With that in mind, key seasonal sell weeks are usually the week of Thanksgiving and the first week of May. These are seasonal weeks to make sales especially if prices rally into that key time window.

Gann and Fibonnacci are number sequences I use that evolve around certain key days and/or weeks. The main numbers to work with are 1, 2, 3, 5, 8, 13, 21, 34, 55, 89 and 144. From a major low or high, I count these key days and weeks from that point on my charts. I highlight those days and weeks as being key COT time periods. If one of those weeks happens to fall in late October there would be two reasons to expect a key COT week to develop.

Each year, market timing is different. This year corn and soybean markets were making major changes in trends (highs or lows) every 83-90 trading days. So, projecting major possible COT 17-18 weeks from the major low in July helped to project a possible high the week of Sept. 13, 2002.

Key COT weeks I'll watch the first six months of 2003: Feb. 28, April 4, May 9 and June 6.

The study of price is more mechanical. I look at contract highs and lows, the previous year's high and low on the daily continuation charts, and the projected average yearly trading ranges. Based on that set of parameters, the table below shows key price levels I'm watching for.

CBOT Soybean Prices
May 2003
Potential Highs Potential Lows
$5.88 $4.73
6.05 4.65
6.25 4.41

November 2003
Potential Highs Potential Lows
$5.43 $4.85
5.92 4.45
6.25 4.21

These are price levels. For example, If May soybeans hit $5.88, look to $6.05 as the next upward price step.

Keep in mind that news will be bullish at the top and bearish at the bottom. Second, combine these two theories and you can see if May soybeans trade up to $5.88-6.25 or higher the week of May 9 or June 6, you'd hit a key time and price target to make the sale. If May soybeans collapse, dropping to $4.45-4.85 in late February, keep the bin doors closed.

Our current strategy is that 50-100% of the cash soybeans are sold. For producers who went to 100% sold, we're holding the August soybean $5.60-6.60 call spread as a method of re-ownership on 50% of the 2002-crop soybeans. For 2003-crop soybeans, no sales will be considered until prices are 10-20¢ above loan.

Alan Kluis is executive vice president of Northstar Commodity Investment Co. If you have marketing questions or want more information, write: Northstar, 1000 Piper Jaffray Plaza, 444 Cedar St., St. Paul, MN 55101; call: 800-345-7692 or e-mail: [email protected].

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