For several years I have followed and traded an interesting setup in Soybeans that only occurs three or four times per year, but is quite consistent.
It is rather uncommon for grain producers to store their soybean crop in typical on-farm storage structures for a variety of reasons. Among these is the relatively difficulty, compared to corn, of maintaining the quality of the beans during the storage period and lack of use of raw soybeans in live stock rations. It is first necessary to process the beans into soybean meal and use this as a protein supplement. This processing also removes soybean oil which can be quiet unfriendly to the digestive systems of swine and especially cattle. As a former practicing Veterinarian I could tell you stories all week about these disasters.
The result of all this is the storage of soybeans in a commercial elevator which is equipped to handle the product either from a storage or processing perspective.
The soybean crop, due to its relatively shorter growing season and extreme vulnerability to bad harvest weather, is the first to be harvested. Since many operators have rather significant operating loans from a variety of lending institutions it is common for a significant percentage of the soybean crop to be sold “over the scale” meaning that the product is sold to the elevator at the price currently available when the product is delivered.
Which finally brings us to our seasonal trade.
By regulation, elevators are required to hedge their commodity purchases on the Chicago Board of Trade (CBOT) to protect themselves and their owners (many of whom are the producers that deliver the grain, as most of these facilities are a portion of a farmer owned cooperative).
As a weekend during the September – October harvest season approaches it is beneficial for the elevator to pre-hedge at least a portion of their anticipated purchases of grain over the weekend when the grain markets are not open.
This gives rise to the typical late Friday selloff in the November bean contract late in the session as illustrated in the chart below.
Although I have indicated on the chart above a starting time for this trade between 11:30 am and 12:30 pm please use this time frame as a general indicator – watching the actual intraday soybean chart will give you a much better feel for a good entry.
Be sure to exit the trade prior to the close of the bean market as holding a soybean trade over a harvest weekend is a rather low probability trade. So, to quote my friend CB, “GTFO!”.
Once again this trade is only good for a few Friday afternoons during the harvest season, which is usually dependent on the end of the growing season and, of course, weather.