Chore time for me isn't what it used to be when I was growing up on our eastern Iowa farm, but taking care of two horses in the morning before I head in for work gives me a little time to think about the day ahead. Each morning, stop at this spot to get a feeling for the "tone of the day" - and some attitude about agriculture and the markets.
I was thinking…
... about where the grain rally stands in its "life cycle."
This isn't a warning... or a prediction. It's more of a reminder. The 2008 grain rally ended the last day of June. In the first week of June 2008 (actually, that week's trade started May 30), front-month corn futures fell a half cent. But, in the first full week of trade in June 2008, front-month corn gained 51 1/2 cents. In the second full week of June, front-month futures rallied 81 cents. (Of course, the Midwest was experiencing record flooding during that rally.) By the third full week of June, the flood waters were starting to subside and front-month corn futures slipped 10 1/2 cents.
The rally peaked in the week started June 27 -- with front-month futures posting an upside reversal on the weekly chart while gaining 46 1/2 cents on the week to the all-time high weekly close of $7.67 3/4. By the end of the second week of August, front-month corn futures had plunged to $4.98 1/2.
By the time that rally was over, the move was a full 11 months old! That, my fellow chart-watchers, was a "mature" rally.
The current rally started from a low posted in front-month corn futures the first week of December 2008. So, the rally is already a full 6-months old. By "old standards," that should be viewed as a "mature" rally. But when the year-ago rally hit six months old, it was just starting to attract more "investment" money -- the kind of money it takes to push moves higher (or lower) than expected. Some of that money is coming into the market now, and front-month corn futures have now posted 10 consecutive closes above the 200-day moving average. That's the kind of pricing action it takes to continue to attract "trend-following money." Trend-following money is investment money... and you know what that can do to a market.
So... which is more important to watch? The calendar and planting progress? The money flow into the market? The charts? The "maturity" of the rally?
U.S. corn planting progress hit 93% as of May 31. That's just 1 point behind last year's planting progress and this is the week in 2008 that saw a price explosion (Again... the floods had something to do with that.) Rather that planting progress, I'd give the one-year anniversary of the all-time high in the last week of the month more "weight."
More money is flowing into the market... because of the charts and the long-term trend. When prices cross either side of the a long-term moving average (like the 200-day MA), it normally takes time to reverse that trend -- it's like trying to turn a battleship rather than a speed boat. That slow turn in long-term MAs should keep money flowing to the long side of the grains for quite some time. And since front-month corn futures are just moving away from the 200-day moving average, it could be argued the market is just middle-aged... and still a month (or more) from maturity.
For now, we're comfortable following the momentum of the market... and letting the rally run until it gives us a clear signal the surge is coming to an end.
And I'm sure you're probably wondering why I'm talking about corn instead of the high-flying $12-beans, right? Well... we'll rundown the situation on beans later this week.