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Cracks in the bull market?

Agriculture.com Staff 12/10/2009 @ 6:14am

Soybeans and corn both rallied during harvest, putting the bull market into high gear as the US dollar continued to decline and the precious metals rallied nicely. However, lately once the harvest was nearly done, the market found some price weakness last week with a couple downside reversals in grains and some troubling signs in outside markets:

1. Crude oil starts to fade. Crude oil rallied to new recent highs above $80, then started to fade and has dropped $10 from its highs. This recent weakness is putting some question in the bull market for crude oil, which has found itself as the weak sister of the commodities market recently.

2. Excellent November harvest weather. The November harvest weather improved greatly from the awful October that caused so much concern for harvest. The soybeans basically got harvested in November, and so did much of the corn (at least the corn that people planned to harvest this fall). This provided some change to the strong basis levels we started harvest with, and a weak basis is a sign of a struggling market.

3. Cracks in the weak dollar. The dollar had been in a torrid downtrend, but a mere mention of the possibility of higher interest rates by the federal reserve put a nasty turn lower in the dollar. Is this a sign of a new trend by the dollar?

4. Precious metals pushing sharply lower. The same turn of interest rates implied by the Fed pushed metals sharply lower as well. Could this be a sign of a struggling metals market in the near term??? The torrid pace of gains in precious metals (led by gold) have seemed to push commodities higher with no change in fundamentals (or even when fundamentals were pointing lower). Could this finally be ending?

5. Slowing of exports of corn and wheat. These two markets have struggled with weak exports all year (just as soybean exports have been strong). Could the weak exports of the other grains spill into the soybean pits?

6. Everyone assumes the bull market can continue now forever with no hiccups now that the market has rallied during harvest. When everyone turns bullish, that's just when the market starts to lose its bullish enthusiasm as then all the buyers have already made a purchase. There are no buyers left to propel the market higher.

Maybe these things are all just an imagination gone wild, or maybe there is some truth to the idea that the current commodity rally is tired, and the sign of a change in the wind is starting to blow in from a number of directions.

Beware! We might finally be in for a turn in markets lower!

The information contained, while not guaranteed as to accuracy or completeness, has been obtained from sources we believe to be reliable. The opinions and recommendations contained are based on our judgment and do not guarantee that profits will be achieved or that losses will not be incurred. Recommendations should not be construed as an offer to buy or sell commodities. There is substantial risk of loss in trading futures and options on futures.

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