There will be a little something for everybody on this post. I won't spend any time on stocks, bonds or precious metals in this post, but you can see that according to Sentiment Trader, Agriculture is the asset class most out of favor right now and poses the least risk for playing the long side.
I first wrote about this event back last summer when in July I wrote about the dollar cycle and how predictable its nature is. Below is an updated chart which shows we are due for a 3 year cycle low, probably this fall.
We would normally expect such weakness in the dollar to correspond with a pretty nice rally in the grains. That has not happened yet as Chicago has been trading weather, but I think this will change soon........very soon.
The commodity cycle lasts a bit longer than the dollar cycle at 3.5 years. The last commodity cycle bottomed at the beginning of 2016. I was not blogging at the time, but those who sat through my crop insurance presentations should remember that I was extremely bullish grains back then and we did have a monster rally.
I think the dollar is on the cusp of making another leg lower. This very well could be all the grain market needs to break it from this horrible bear market. In the dollar chart below, you can see that we have begun a new daily cycle. We are only on day 9 and already the cycle has failed. Most daily cycles last 18-25 days which means we have at least another week of the dollar moving lower. One other idea to consider is that there is a debt ceiling vote in October. I would not be surprised to see the dollar continue to sink lower into a very stretched daily cycle until the debt ceiling vote in a move that looks much like the move the dollar had back in June/July. If that were to happen, the dollar will be deep into the .80's and American corn will look very cheap!
Looking at the weekly chart, we can see that corn bottomed in August in 2015 and 2016. I think corn will bottom in August this year as well. You also see that the Stochastics and the RSI are at very over sold levels. This is telling us that a bottom is imminent.
We have just now reached extreme bearish sentiment levels on corn believe it or not. The market has been cleansed of most of its bullish sentiment which is necessary for a sustainable rally.
I would recommend the following three things to any farmer growing corn: 1. Do NOT sell cash corn or any corn on the board. 2. Set their basis. 3. Lift their hedges if possible.
Corn is at an actionable level and close to a bottom but soybeans are still not telling me much. The weekly stochastic, RSI, and CCI levels are not telling me that beans are near a bottom yet and I am not finding the sentiment levels on soybeans a dependable indicator these days. A weakening dollar will still help soybean prices however. I don't see a lot of downside to waiting on to make any futures sales.
Soybeans are dropping their leaves in the Glendale area already and the combines will be running soon. The basis will go to pot quickly once these soybeans begin arriving at the elevator. I would recommend locking in basis levels now but would not recommend pricing any beans on the board.
That's quite a massacre in the wheat market since wheat topped back in July. Sentiment levels have not reached excessively bearish levels yet, but the weekly stochastics are showing that we are near a bottom.
The daily wheat chart shows that we could be getting a swing low.
If you are a wheat producer, I would recommend that you lift your hedges soon if not now. I would also recommend selling some puts to add some premium to your wheat. I outlined this idea on August 17 as part of a synthetic strategy and could give the recommendation to sell puts as soon as Monday.