Never sell a quiet market

Published on: 16:11PM Jun 28, 2017

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Corn and bean markets appear now to be treading water as we mark time before the USDA releases this coming Friday. Adding in just a bit of weather uncertainty, with heat forecast to return in mid-July also appears to be keeping bears just a bit on edge but as of yet, at least does not appear to be stimulating an overwhelming amount of new buying.   

MWThere is one market though that has been explosive so far this summer due to weather issues and that has been Minneapolis wheat.  Again this week, this market has extended into higher highs for the year, reaching to loftiest mark posted since June of 2014.  Granted, when you look at a long-term chart of this advance, the current move is dwarfed by the incredible rally and peak made back in 2008 but recognize that we have already gained 36% ($1.87) off the April lows and show no signs of stopping just yet.  If you would like a few reference points, a 38.2% retracement of the 2011/2016 high to low range is 7.21, and a 50% retracement is at 8.01. 

Now, a vast majority of you may be looking at this and thinking, that is all well and good but none of this will necessarily bled over to the corn and wheat or even soft red wheat markets but regardless if that happens right now or not, I still believe there are several key elements to take away from this move and at least keep them in mind. 

This first is, of course, weather trumps all.  After several years in a row of rather benign conditions, I believe the trade has been lulled into somewhat of a stupor thinking that either a) crops are nearly impervious to weather issues or b) we have enough inventory that even a problem would not create much of a price move and this reaction would seem to dispel both.  The second is that much of the commodity sector and certainly the grain markets have been sitting at a place of value (base in 2009/10 and again 2015/2016) and have remained here long enough and at an unprofitable enough of a level for producers that there would appear to be little downside risk.  The third item is more technical and comes from the theory that the longer a market moves sideways, the larger and more rapid the move is once it has broken away from range it was bound within.

As I mentioned previously, even through there may be a few more weather/production related issues simmering in the corn and bean regions this year, there is nothing that would suggest yet that we can witness the same type of reaction there as we have in Minneapolis wheat this year.  That said if you ever begin buying into the notion that all hope is lost and markets can never become exiting again, reread the last paragraph.