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Is Price Action Different in a Fundamentally Bull Market?
8/27/2009
In order to discuss the potential differences in price action one first needs to define what the difference is between bull and bear markets. Many mistakenly in our opinion define a bull and bear market simply on price action. If the prices are moving up we are in a bull market, if prices are moving down we are in a bear market. Using this definition makes it impossible to evaluate all the conditions (environment) that effect price action.
Our definition of a bull market is defined as a time period when normal production is outpaced by demand. Many think the 1996 rally in corn was a bull market because of a big price rally, it was not! Prices rallied because of poor production (a short lived situation). Have we seen poor production numbers the past 5 years in corn? NO! Then how do you explain the higher price level of corn. Take a look at 2009 fundamentals; the USDA is projecting a near record 159.5 bushel yield with the second most planted acres in modern times. Yet the USDA is projecting a REDUCTION, let me say that again a REDUCTION IN ENDING STOCKS! As of Sept. 1, 2009 there will be 1.72 billion bushels to start the 2009/10 marketing year. Next September 1 the market is forecast to have 1.621 billion bushels left. That is 99 million bushels less. THAT MEANS THAT 159.5 BUSHEL YIELD AND 87 MILLION PLANTED ACRES CAN NOT KEEP PACE WITH DEMAND!
The junk I am hearing reminds me so much of the early 1990's. There was a fad in trading back then using past history of prices to forecast future prices. This type of system was called "mechanical trading" and worked by giving buy and sell signals when "certain" price movements occurred. There were other mechanical systems that paid attention to other events like the corn market rallies after the first snow in Chicago. People actually believed that past history would repeat time and time again. What they failed to realize is that the "environment" is never the same. Needless to say these systems did not last long but it did cost a lot of people lots of money.
The reason I am bringing this up is because I have read really stupid stuff lately. Like the price for corn will continue to fall because after a bull market prices put in a long tail (when you look at a price chart prices look like a tail as they drift lower and lower). That was true in 1996 because we were not in a bull market we were in a short term price move higher because of a short crop. Demand was less than production so prices drifted lower for a long time after the prices move higher because DEMAND was not the issue, it is today. When you see this junk please compare the simple fundamentals from one year to the next. You probably won't even have to look at all the other differences that are in the market today to see how (I'm sorry but...) stupid this way of thinking is. Back in the early 1990's a wise fellow trader told me that only the lazy looks at the past and draws conclusions. She went on to say there is no easy way to make money selling or buying grain, you have to do ALL the work. To her I say THANK YOU!
Friday, September 18, 2009 1:42 PM by: Anonymous
BEAR BEAR BEAR
Friday, August 28, 2009 9:55 AM by: Anonymous
You're right, December corn is at 3-year lows....definately a bull market!
Friday, August 28, 2009 9:53 AM by: Anonymous
I believe this article is right on. We are in a bull market for corn and soybeans. Demand is growing and consumption at way higher levels than in the 90
Friday, August 28, 2009 12:42 AM by: Anonymous
13 billion bushels of corn produced and 11 billion consumed in ayears time is that poor demand? 3-billion bushels of soybeans produced and we are almmost exhausted supply? I have a hard time believing these numbers constitute a major collapse in prices? Or where did I go wrong?
Thursday, August 27, 2009 2:32 PM by: Anonymous
You're assuming the USDA's ending stock projections are correct. That sounds pretty...stupid to me. This is a futures market. What the USDA estimated was in the past. Demand has gone up every year since the beginning of time, so what's your point? You're supposed to always be long because over time demand continues to increase? Lots of people have lost money that way also.
Thursday, August 27, 2009 1:42 PM by: Anonymous
It is about balancing supply and demand. It is also about projecting future supply and demand. Future supply is projected to be large. The question is will the yield be seen? The other question is will good demand continue? The only market that I see that is continuing good demand is China. All domestic markets are suffering.
Thursday, August 27, 2009 1:39 PM by: Anonymous
After reading this article, I came to the conclusion that it was written by a child. "The reason I am bringing this up is because I have read really stupid stuff lately." - That sounds like something a teenager would say. You're stupid, no you are!
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