Here are a few quick thoughts.
1. The CCI is not giving a buy signal on corn, but given the overall weakness of corn, especially with what happened yesterday, I would not consider selling corn. We did have a hammer doji yesterday which I think means we are at the bottom of a daily cycle and should have some price strength for a week to 10 days at least.
2. Notice how true to the fibonacci's corn (soybeans also) have traded.
3. The 200 day moving average has turned lower. Longer term, I expect weakness to continue.
4. The CCI is giving a buy signal on the bean chart, right at fibonacci support.
5. Looking at the bigger picture, the JJG grain ETF which follows the basket of corn, soybeans, and wheat is at support.
6. The entire commodity complex looks similar for that matter. Notice how well the CCI works to spot trend reversals? Also, we are in the timing band for a bottom in the commodity cycle. I will have more on that later. Large fund traders look at that.
7. The speculative money does not want to be in any commodities period. That said, there is no denying that the grain markets are over sold by any metric you use. The coldest spring in 24 years..... the latest start to planting in 17 years...... At some point, they will trade the weather.
Yesterday, I posted where some support is holding underneath commodities as a group. Today, I wish to continue that theme, but zero it in on the commodities which are of most interest to farmers, specifically corn, soybeans, and wheat.
Most of this post will focus on the technicals, but keep in mind, on the bullish side, there is massive flooding through out the heart of the corn belt delaying planting. Freezing rain is predicted tonight in some places......snow in others. Weather premium should be coming back into the market soon. On the bearish side, the stocks number continues to grow. At the heart of the weakness in all commodities is the "get me out" mentality from the funds. At some point, there will be commercial buyers enter the market to lend support, but it is the funds that drive the market.
Starting out, the same pattern is showing up on this three year July corn chart. On the bullish side, we have a CCI Buy signal, trend line support, and a gap to fill at $6.76. This, along with planting concerns should be enough to provide a bounce. On the bearish side, the shorter term trend is certainly lower, and the 200 day moving average (green line) has turned lower. Once the 200 day MA changes direction, it normally takes about 6 months to change direction.
The December corn is where we really want to focus on getting sales made. Clearly, there is a trend line break. There are no CCI buy signals. The 200 day SMA is now pointed lower. Lower highs and lower lows. We are still .53 cents above the 85% RP crop insurance floor. With some sort of small rally, we can still get a reasonable price locked in. The next stop lower will be the $5.12 area, which were the lows of 2012.
May soybeans are still holding onto its trend line. I am not expecting to see any sort of rally back to $15. The 200 day simple moving average is now flat.
November soybeans prices have moved between two trend lines now. Depending on how you chose to look at it, prices are nearing support or have broken support. Unlike December corn November beans show signs of being oversold from the CCI. That is good enough to me to not bite on any further declines for a while. I am not bullish beans, but do not believe this is a place to make sales.
July wheat is still stuck in the $7.00 price range between the 80% and 85% price floor guarantees. The CCI is not giving me any sort of encouragement for anything more than sideways trading. Buying options in a market like this is not a good idea. That said, should prices will probably plunge further should corn make further declines. Wheat sales here could still be prudent if you have not yet made cash sales, but you should make plans for re-ownership should something unthinkable happen.
To summarize, I would suggest aggressive corn and soybean sales on a rally. Wheat should be sold with a plan for re-ownership.
I am aware that we are in for some volatility the likes we have not seen since the Great Recession of 2009. This will be a period where what gets done today will seem right, will seem very wrong in a couple weeks, and will again seem like the right thing to do in a month. Unless you want to day trade your position, you will be on the wrong side of your position from time to time. This is where marginal positions will be most taxing on your psyche.
There are a lot of things happening across a broad range of markets, and this is what is giving me some encouragement. No, we will not see new highs, but the grain markets have refused to collapse despite many other outside markets collapsing. When some of the corresponding markets find a foot hold, I think we will get the bounce needed to make some grain sales.
Let us begin by looking at the Dollar.
The dollar printed its daily cycle low on Tuesday, so we now in the beginning of a new daily cycle. The type of move we had Wednesday puts a lot of pressure on stocks and commodities, however then entire grain complex held up well. The dollar is now trading towards an intermediate cycle low between May 10 and May 24. We want to have grain sales made prior to the next collar cycle bottom.
There are three ETF's that I watch which are an important index for grain farmers. The first is DBC, which is the basket of all commodities, including lumber, copper, oil and ag commodities. DBA is the second I watch, and is comprised primarily of corn, soybeans, wheat and sugar. The other is JJG, which follows just corn, soybeans and wheat. The third and newest is JJG which is just corn, soybeans, and wheat.
What I would like to point out on DBC is that within the entire commodity complex, we are at an area of support spanning three years. Commodities have yet to confirm a bottom, but are in the timing band for a low. Besides that, DBC will be forming a buy signal on the CCI oscillator. This tends to be a pretty reliable trend reversal tool.
Agriculture DBA shows an even longer trend line support going back 4 years.
The grain only ETF JJG is chart is from the shortest period of time, but also shows a truer trend line in my opinion with 4 touches.
When a trend line fails, it marks a change in the market place. Something becomes different that was driving the market. This trend line could hold, but the exodus of funds holding any commodity could be the driver that breaks the trend. I am nearby neutral, long term bearish, but short term optimistic. This should provide the opportunity we have been looking for to get some sales on the books.
I blew blew it. That will never happen again. I left a crop largely unpriced in front of a major market moving report. The quarterly stocks report for corn was the biggest miss by the trade in report database history at 396 mb more corn then the trade expected. The second closest was 310 mb dating back to March of 1989 following the 1988 drought year. Yes, the adjusted stocks number came out of nowhere and nobody saw it coming. But Isn't that what insurance is for? To protect against things you cannot see?
With the benefit of hind sight, I can clearly see what should have been done. I still would not have recommended heavy cash price sales, but would have instead protected the crop with a low cost put option strategy which would have set a floor. This could have been done for around .16-.17 cents per bushel for near month ATM puts. In hind sight, a bargain. That would have been an insurance policy against an adjustment that comes out of nowhere.
Portfolio managers for major stock funds employ this strategy all the time. The use of put options in front of earnings reports is done to spare the tax consequence of actually selling the stock. In stocks or commodities, you don't want to be stuck naked holding long positions when the funds become scared. The put option strategy is really the only way to play both sides in front of a report.
Moving forward, expect to see this option strategy recommended n front of all quarterly stocks reports. It has become a rule.