Morning Comments - Bulls are waving the white flag
Jul 11, 2014
The early strength yesterday turned out to be rather brief as prices for wheat, corn, and beans all pressed into lower lows for this swing. A pickup in farmer selling of old crop corn was noted so like the large funds, it would appear we have reached the point where the last of the bulls are in surrender and liquidate mode. I was on with Chip Florey of Market Rally Radio yesterday afternoon and he correctly pointed out that it is never encouraging when the most positive thing that can be said about a market is that it is really oversold. As we all know, reaching an oversold state should put us all on alert that a rally can occur at any time but you can remain in an oversold position for extended periods.
I suspect that there are a few longs hoping against hope that the USDA will provide us with some morsel of positive news in the supply demand report today the will stop the hemorrhaging that has pretty well bled out the bull. While that possibility exists, it would seem pretty remote. Expectations for yield estimates may be getting a bit ahead of where we stand today but that said, the weather outlook through the balance of the month and the preliminary August forecasts do not appear to provide much in the way of encouragement for anyone looking for a price reversal.
I have pointed out a number of times in the past that according to the long term patterns in the corn market, we have a history of establishing major and often extreme lows two years after the 30-year cycle peak and if consistent this time around it would say that we will accomplish that this year. The lows established in corn then mark what should be the low side of the major trading range for the next 20 to 25 years. The positive aspect of this is we should see prices rebound into 2015 but the bad is it would not appear that we have reached the lows as of yet. As I have pointed out in previous comments, the gap lower this week in corn and beans appear to qualify as measuring gaps which open up the possibility of December corn pushing down to a minimum of 3.75 to an extreme of 3.12 and November beans to the 10.20/9.80 to an extreme of 8.95 levels. While those bottom numbers may not seem realistic, particularly for someone producing corn or beans, keep in perspective that market highs and lows always push to extremes and this could just provide a counter balance to the 8.49 and 17.89 trades posted in August and September 2012 that probably were not realistic levels to have reached to the upside.
While I do not know with any certainty if we will reach to these extreme of a level, what I do know after over 35 year in this business is that it is not time to panic and begin marketing in desperation. Every meeting that I have spoken at in the past year I have been impressing on the group that we have moved into a period of realignment in U.S. agriculture and while that may be painful and challenging at times, ultimately it will be those the employ solid and disciplined risk management strategies that will strive in the years ahead. Expectations may need to be trimmed but marketing on fear and desperation will never be a good plan.