I believe we have a top in the dollar, and expect a substantial drop to occur soon. This will be a nice and welcome wind behind all commodities, and the grains in particular. Like commodities, the dollar also has 3 year cycles. I did a post explaining this back in July. It is my opinion that the dollar is, at the very least, at an intermediate top, and probably a 3 year cycle top. I expect the dollar to bottom some time next summer.
While picking tops is not my forte, I have a reasonable shot at picking bottoms. Because the dollar trades inverse to the Euro, I can use the Euro to help spot when the dollar is topping. Notice how the euro optimism index at the bottom of the chart is beginning to turn up from excessively pessimistic levels?
On the weekly chart, all the oscillators I study are on the verge of giving buying signals.
Oil today dropped 4%, so this 3% move in corn should not surprise anybody. I don't see any technical damage to the corn chart. My expectation is that this is was a profit taking event after a strong couple weeks.
It is no secret that since the summer lows, soybeans have rallied much higher relative to corn. The new crop soybean/corn price ratio is at historically high levels of 3.05:1 old crop and 2.7:1 new crop. I think this ratio will come back in line over the next couple of months, more to the benefit of corn than the detriment of soybeans.
As I suggested back on November 8, Soybeans have moved well into new levels. I am recommending taking advantage of this recent spike in the March futures to finish your soybean sales for 2016 as a futures only sale. Soybean prices spiked to near 78.6% of the total contract high of last year at $10.74. We will get a sell signal soon on the CCI oscillator.
I am also recommending to sell another 10% of new crop soybeans at this level. Soybeans have broken out to new highs, and we will have a CCI Sell signal in short order. As I am writing this, beans are at $10.358.
On the weekly chart, soybeans are now at oversold levels. The RSI, and Stochastics are at oversold levels, and the CCI soon will get there.
I am not worried about prices falling off the edge of a cliff here, and we are still a day or two from triggering an actual CCI sell signal. These are good price levels to begin 2017. We are just beginning to head into the spring price discovery period which is typically bullish The dollar is at extremely high levels and should drop any day, and the optimism index is showing there is a lot of room to go higher. $11 soybeans are not out of the question and are at the next Fibonacci extension at 161.8. Prices will probably need to get that high to get the optimism index over 70.
On my last post back on November 8, I said I would wrap up this marketing year at options expiration which happened on Friday. Before looking ahead into next year, I wanted to review my track record for this year, point out the things I saw coming, and the things I did not see coming.
2016 Soybeans - $10.61
The biggest news of 2016 had to be the rally of commodities out of their 3 year cycle low while at the same time, oil, gold, grains, and even stocks were at extremely over sold levels. Market sentiment was extremely pessimistic early in the year. That is the fuel for large rallies, even if fundamentals are poor. Just the short covering which occurs at those moments can fuel large rallies. Seeing this allowed me to forecast much higher commodity prices.
Soybeans responded in a way that were predictable. My biggest mistake with soybeans was being so conservative in trying to get sales made while my own analysis showed traders had not yet become optimistic. I made a couple recommendations to sell too early after prices had rallied a dollar off their contract lows. My final call was AT the top of the market when optimism had become excessively bullish. The average price for 2016 soybeans, had every recommendation been followed was $10.61, well above average which was around $9.88.
2016 Corn - $4.32
Corn proved to be much trickier, not from a price standpoint so much as a timing standpoint. The corn market rally began on May 9 and topped on June 17. I had recommended the sale of 25% at $4.45 as the market optimism had reached excessively optimistic levels. This was at the high. My bias was that the market could still rally higher because it was rallying out of its 3 year cycle low, but fundamentals of a huge corn crop entered the picture, and we had no more real opportunities to make sales. This was mistake #1.
Mistake #2 happened on June 23 when I recommended lifting the hedge when corn dropped to $4.05. The hedge did net .10 per bushel on all bushels, but could have yielded so much more. My timing was centered primarily around the 200 day moving average which often serves as support and resistance.
I prefer direct contracts with grain elevators as a primary marketing tool. Most years however, there will be "mistakes" where a brokerage account becomes necessary. Upon accepting the reality that the market had come and gone, but still modestly bullish, my next recommendation on June 24 was to add some revenue to the marketing year by selling puts on the remaining 75% of the corn you expected to grow. 80% of all options expire worthless, which is why I generally recommend not buying them. Selling puts is a bullish strategy you use if you believe prices will remain level or move higher. This strategy is not that risky most of the time, but this strategy turned out to be costly this time. Had you sold the puts when I recommended at .40 cents, you would have bought them back at expiration at .51. Instead of adding to the marketing results, it took 11 cents from the end results. This was mistake #3.
On August 30, I called the bottom in corn and recommended re-ownership on paper. This would turn out to be a day early, but within a penny of the bottom. Yes, I suppose this would be considered a Texas hedge. Although corn was at a bottom, the reality was there was going to be a very large corn crop, so the fundamentals were not there for corn to rally quickly. Because of this, I recommended a synthetic re-ownership of corn using oil. I recommended this synthetic re-ownership because to a greater or lesser extent, oil and corn tend to trend together. I recommended taking a long position in oil to mimic what would need to be done to gain .84 in corn..... enough to get the cash price back to $4.00. This would mean that oil would need to reach $50.50 which happened on October 10.
The average price for 216 corn, had every recommendation been followed was $4.32, again well above the average price which was around $3.67.
Folks, like any other marketing company, I prefer to recommend contracts with the elevator and be done with it, case in point, the soybeans. The corn market threw out about every curve ball imaginable. Having to use synthetic Texas style hedges is about the limit of my imagination, but this was an extreme year. With a range of $4.49 to $3.14 over 2.5 months, you would probably be severely left behind without a brokerage account, unless you sold all your crop prior to pollination.
For those folks who have followed along this year, you know that my calls were made in real time. There have been no behind the back alterations or modifications made here. I prefer to be as transparent as I can be, pointing out my mistakes as I went. Its why I include links to posts I made at those times.
Those who know me know that I do not subscribe to other marketing agencies. My work is completely unique. I do not follow the herd on any recommendations, so I will not blame my failures and mistakes on consensus. (Well, everybody got that wrong.....Nobody saw that coming)
I have already sold 10% of the 2017 soybean crop with a 10% sale at $10.05 on June 8. Just Friday, the 2017 Nov soybean contract broke out above this level and is making new highs. Don't be left behind!
As I stated back in September, corn continues to grind higher....at an excruciatingly slow pace. There just are no fundamental drivers to send it higher really, but no new bearish news either. Until the trend breaks, I expect this trend to continue for a few more weeks. Until something happens, I suggest you continue sitting on your hands with the corn and the soybeans. I have made no recommendations now for over a month when I closed out the synthetic corn long trade.
I think at some point...probably options expiration on November 18, we should be at or near the 200 day moving average (green line on the chart below), which would be in the $3.69-$3.70 range. At that time, I plan to close the books on the 2016 corn crop and begin looking ahead for opportunities to sell some 2017 corn.
As hard as it is to believe, its been over 5 months now since my final recommendation to sell soybeans at $10.61. That was 75 cents ago. If you are still holding onto unpriced soybeans, I see fundamentals under the market in a similar way to corn. There is no fear of running out of soybeans, so they have been just trending sideways now, never moving far either way from the 200 day moving average (green line). I think with the election behind us, we could get a small bounce in the bean market that could push prices into the $10.26-$10.50 range. The CCI oscillator (see the sub graph) will probably give a sell signal when prices reach that level. I will make note of it here when that happens and send out a text. That will probably be your last great opportunity to sell the balance of your beans.
Back in June, I had recommended to sell 10% of your 2017 soybean crop at $10.05. When the price action above occurs, it will probably be a smart time to price more of the 2017 crop. The chart below is the November 2017 soybean chart. You can see that we caught the first 10% near the contract highs. This move will test that high, and possibly make a new contract high. I expect to sell more beans at that time.