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vrbuck
Advisor

Obviously lows are in grains.

Is it a cyclical low or emotional low. Like I said the time of the bear was close at hand. If you subscription searvice didn’t call this low, you need to quit sending them money.
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24 Replies
rayfcom
Senior Contributor

Re: Obviously lows are in grains.

I don't think its obvious at all that the lows are in for the grain markets, and in fact, I think that during the next two months when the record corn crop now in the field starts coming to market, you'll be singing a different song.

 

Today is a short cover rally that every coop should be using to hedge the crops of their farm clients. The volume on the December Futures Contract is just a bit more than half the volume seen on September 12 when there was an equally powerful move in prices but to the downside. On the charts, last week left an "outside bar" - higher highs and lower lows than the prior week, with a close below the prior week's low - on the Weekly Continuation Corn Futures chart. That's a terribly bearish signal for prices. The market became oversold during the early part of this week, and today the sheep were all herded into the loss pen. 

 

Nothing has changed in the corn market today save for the open interest of speculators. This is a third year in a row with an outsized crop, and the speed with which prices have fallen since May has left a lot of producers stunned and hoping that prices will come back to the highs earlier this year. Its a really doubtful outcome, there's just too much crop and not enough silo space. 

 

Give me a couple of days of rising prices accompanied by daily volume in the front futures contract over 750,000, and a crop report that says there's not as much corn coming to market as has been reported to date, and I'll get positive on prices. For now and in the absence of such news, at $3.50-ish a bushel for December Corn my bet is you see $3 before $4.

 

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BA Deere
Honored Advisor

Re: Obviously lows are in grains.

Hope you`re right Vrbuck.  Prices were knocked down too low over lack of feed for the "bull".   Not to say they can`t go lower, but I think endusers see the buy of the century here and all it would take is some news on a trade deal with China and commodities could jump a buck in beans and .50 in corn so easy.   Swine Flu and Foot and Mouth also bullish for US producers if we can stay clean, we could be the only game in town.   And the Dollar weakening.

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roarintiger1
Honored Advisor

Re: Obviously lows are in grains.

The record corn crop is on paper and only a prediction at this point.   Grains are still on sale and are being used. End users are still delighted.

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rayfcom
Senior Contributor

Re: Obviously lows are in grains.

Yes, you are correct, only a prediction. But price calculations in commodity and financial markets are based on all known information available at any given time, and so the price the market now assigns to corn is based on what is known (called Capital Asset Pricing Model). And what is known is that based on the same or at least very similar methodologies used each time a crop report is compiled, there is a bumper crop growing in the fields right now, and thus price calculations for the foreseeable future must be based on that information. 

 

And yes, end users are delighted, but they will be more delighted at $3 per bushel than they are at $3.50. And if I am not mistaken, they will see $3 before they see $4.

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rayfcom
Senior Contributor

Re: Obviously lows are in grains.

No one would be more delighted than me to see a big, sustained rally in corn prices, because the farmers work as hard as anyone in their profession and they deserve to be rewarded for that. The problem is they presently are victims of their own success as they feed the world. Improvements in farming technology and machinery make the farmer more productive than ever, but that has led to them producing more corn during the last several years than the world can consume. Which is why corn prices repeatedly have fallen at successively lower highs since the $8.43 level touched in the middle of 2012. The global economy, especially in America, is firing on all cylinders right now, yet corn prices are only half a dollar higher than their multi-year lows at $3.01 recorded in August of 2016. So it seems quite apparent that $3.50 is not really the buy of the century, for if it were you would not have had a chance to buy corn there or lower for most of the last four years. More troublesome for corn prices is if the market cannot sustain a $4 price per bushel when the economy is strong, what will happen to consumption and hence prices when the economy finally recesses after a 10 year period of consistent growth ? Already the US Federal Reserve is well near the point where in the past their tightening cycles have produced recessions, and key economic indicators are starting to suggest that an economic slowdown may be in store. If corn can only fetch $3.50 when the economy is rolling along, its well within reason to consider corn at $2.50 or lower once a recession revisits the world economic stage. Then, perhaps, we can talk about the buy of the century. But surely not now.

 

 

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rayfcom
Senior Contributor

Re: Obviously lows are in grains.

More troublesome for corn prices is if the market cannot sustain a $4 price per bushel when the economy is strong, what will happen to consumption and hence prices when the economy finally recesses after a 10 year period of consistent growth ? Already the US Federal Reserve is well near the point where in the past their tightening cycles have produced recessions, and key economic indicators are starting to suggest that an economic slowdown may be in store. If corn can only fetch $3.50 when the economy is rolling along, its well within reason to consider corn at $2.50 or lower once a recession revisits the world economic stage. Then, perhaps, we can talk about the buy of the century. But surely not now.

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rayfcom
Senior Contributor

Re: Obviously lows are in grains.

One other point about the charts...please notice on the December Corn Future chart, there is a double top in price at $4.295. The first of the two tops was made on July 11, 2017, and the second on May 24 of this year. The low price recorded for the contract between the two tops was made consecutively on December 15 and 18 of 2017, at $3.7925. Technically, this chart formation predicts the December contract ultimately will trade down to $3.29. To date since the last top, the contract has touched as low as $3.425. 

 

Combined with the other fundamental and technical information that I have cited, I think its really premature to declare that the low in corn is in. It seems rather clear to me that there is at least one more down-trade coming, to at least the $3.29 level for the December contract, before we can even consider that we have a bottom in prices.

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Hobbyfarmer
Honored Advisor

Re: Obviously lows are in grains.

With the inflation/ devaluation of the $ , might need to adjust those #'s a little?

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rayfcom
Senior Contributor

Re: Obviously lows are in grains.

Changes in the buying value of the dollar cause the prices of the commodity to change. So there is no need to adjust the prices due to dollar movement, the market is doing that for you by pricing such movement into the prices that trade. Be mindful that the correlations are not all that ironclad, and depend more on the relative degree of buying coming from foreign accounts. Here's a good article on the subject :

 

https://www.thebalance.com/how-the-dollar-impacts-commodity-prices-809294

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