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As it is written in the book of commod-esis, “the weather market giveth, and the weather market taketh away.” Such are the vagaries that we confront each year around this time. Obviously, there were enough showers across a decent swath of the Midwest, and for some in Northern Illinois and South Wisconsin storms that felt as if the next great flood were in the making, that it has at least dosed some the flames that were exciting the trade last week. Actually, when you look at the cumulative rain fall for the upper Midwest for the past week, it would seem that the parched regions to the west and upper plains did not receive much in the way of relief. That said, the most recent 6 to 10 day and even the 8 to 14 day outlooks are calling for below normal temperatures to coincide with the below normal rainfall so crop stress should at least be reduced for now. Does this mean the weather inspired market advance of 2017 is over? I think not but we may need to begin hearing a few yield estimates from crop physical crop tours before we begin exciting the bull once again. Of course, a shift in temperature back to above normal and a couple pictures of shriveled-up with corn/bean fields in the corners of Iowa/Minnesota/South Dakota/Nebraska would not hurt either.
As we wait now for the next potential event that will stimulate the grain/soy markets, it seems a good time to take a longer-term look at where markets are setting, if for nothing else to keep perspective of value and possible money flow. First, we have the combination corn/beans/wheat chart, which has once again rallied from the major support line that has contained the low end of trade moving back through the beginning of this century. Keep in mind that we have only rallied around 6 ½% from the extreme lows, so from a long-term investors standpoint, would you see greater upside or downside risk in these markets? I think that answer would appear obvious and to remain bearish would seem to fly in the face of reality.
Possibly an even better representation of “value” though may be found in the comparison chart between, commodities and financial markets. As I have pointed out in the past, there tends to be an inverse relationship between, the dollar/equities and commodities and we appear to be looking at divergence in the recent trends and pattern. Note especially that the dollar (green line) has been diving lower since the beginning of the year as equities (red line) continue to extend into higher highs, and commodities (blue), as a whole, have turned flat. By no means does anything on this chart suggest that something immediate is about to happen but I would dare say that it would warn that we are pressing the outer limits and may have already moved beyond the extreme of value relationships and once they begin to correct, it will be punishing for those on the wrong side. I continue to maintain that the major commodity lows are behind us and all we lack is a stimulus that we will investment money flooding (no pun intended) back in this direction.