Keep The Larger Picture In Mind

Corn has been severely beaten up over the last few weeks, and now beans are following.  You probably have that feeling in your gut that you are doing everything wrong, and that is playing strongly with your emotions.  These are points where most traders and commodity advisors will make their biggest mistakes.  You don't think the large spec houses with their multi million dollar research departments know this?  What can you do?  Lets take a step back and see where you as a producer fit into this entire picture.

To see where you are now, you need to understand where you come from.  As you recall, back in the late winter, the entire commodity complex, led by oil, was trading at multi-decade lows, and were at levels not seen since the early 1970's.

I had stressed that the consequence of this type of sell off would be a very strong rally which would carry all commodities with it, including the grains.  At this time, the fundamentals for grains were bad, but I believed that did not matter because the consequences of all the shorting would be that eventually they needed to cover which would create a buying frenzy.  I had explained that this is why you did not see rounded bottoms on the CRB.... that it was everybody trying to leave the position at the same time.  The chart below shows the same CRB index today, 6 months later.

A closer look will show that commodities have rallied 27% off the lows.  What, would you think it was going to go up for ever?  A month ago, it was beginning to feel that way, and weren't we all getting excited? 

Corn, soybeans, and wheat combined to appreciate 21.23% in 3 months time.  Once sentiment had reached extreme bullish levels, many farmers were feeling a lot more comfortable.  Again, the large spec traders were ready to pick everybody's pocket again. 

The extreme bullish and bearishness that I study is measurable, and is what Sentiment Trader helps me with.  Sentiment drives the cycles which I also follow.  It is not as good as a crystal ball, but I have not found one of those yet.  Until I do, this is the closest thing I can find. 

Now the other large picture thing we need to know and understand is that the value of grain is not only determined by supply, demand, crop condition, speculator moods, etc, but also by the almighty dollar.  As you probably are aware, due to exchange rates, a strong dollar is deflationary, and makes our commodities worth less around the world.  A weaker dollar makes our commodities worth more. 

Like commodities, the dollar trades on 3 year cycles.  The last 3 year cycle low was in 2014.  Sometime next year, the dollar is scheduled to bottom, and when it does, it will provide the fuel for the next leg up in all commodities, including the grains. 

On Friday, there is an employment report which will likely move the dollar.  If we get a bad number, the dollar will tank which will be great for all the grains.  This at a time when the grains are all at yearly cycle lows. 

Corn

Extreme prices work like rubber bands.   The snap back rally from an extreme usually results in an extreme move in the other direction.  No place is this clearer than with corn.  Once trading 50 cents above the 200 day moving average just weeks ago, corn now trades 50 cents below the 200 day moving average.  I cannot stress enough that these are not times to be fearful.  Times like these are golden to take re-ownership and employ bullish strategies.  They are also gifts to lock in basis levels.

Soybeans

I wish I could provide something brilliant about soybeans but I really can't.  I think beans printed a cycle low on Wednesday with a very bullish reversal candle and touching its trend line.  I am mildly bullish here, but do not have strong long signals like I do corn.  If you have not sold a bean yet, you should probably try to get these locked in soon.  My recommendations would have you 100% sold now at $10.61 and you have an opportunity to lock in today around $10.80.

Wheat

Today, I would be most bullish of all for wheat.  If you have just stored harvested wheat, get the basis locked in and keep your futures open.  Selling puts here could also add a few dimes to your bottom line.

So in the larger picture, grains are still near the bottom of their next major cycle, along with the entire commodity complex while at the same time the dollar is holding on for dear life as it is preparing to drop into its 3 year cycle low.  Expect prices to remain firm here, and higher into next year, and don't forget Friday's employment report which could have huge ramifications for the dollar.