Long liquidation and new selling in grains
Oct 15, 2008
Corn, beans and wheat were under heavy pressure today. Their inability to hold recent technical support gave way to aggressive long liquidation and some new selling. We all know the market is excessively oversold, we know it’s seasonally time for a low, we even know it was a full moon last night which many times leads to people doing crazy things. What we don’t know right now is where the bottom is?
We are effectively moving into price ranges where producers are not going to sell off the combine. This is evident by the narrowing of the basis. Producers who are storing unpriced grain may really want to look forward to locking up basis against future sells because when we eventually start to rebound basis could widen just as fast and neutralizes a lot of the flat price gain.
So what has to happen to get a bottom? Again as I suggested yesterday the outside markets are very important right now. We have to see a regain of confidence that the domestic and internationally economy is not going to shrink any more. Frankly, this is going to take time perhaps all the way into next spring. Second, we have to get harvest done and see the bin door shutting. What I’m suggesting is the bottom could be in today and as easily as it could be as long as prior to Thanksgiving.
This would all suggest if you are a feed buyer or a speculative producer wanting to buy, “NOW” is not the time to be an extreme aggressive buyer. I would suggest tight risk management. My first preference would be to buy in the money calls, and my second would be to buy futures with rather tight stops.
So when do we really get long? Frankly, right now we have to have a solid sign of a bottom. The first one would be a lower open and higher close on good volume. The second technical indicator would be to close above overhead downtrend resistance and a solid moving average of say 8- to 13-day period. Essentially, I’m suggesting you should be a slow buyer of weakness and really wait for strength to buy.
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