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Three signals grain lows are in

Al Kluis Updated: 10/25/2013 @ 11:53am

The long-term grain price cycles I work with and my analysis of grain fundamentals both suggest major lows in the fourth quarter of 2013 or the first quarter of 2014. Let me explain.

I have charted and watched grain price cycles for the last 38 years. I was initially skeptical that long-term cycles would work. My early mentor, a retired grain analyst, told me the key to understanding grain fundamentals was to know that they always look the most bearish when prices are low. In other words, when the USDA reports are negative (and everyone is bearish) and the headlines are doom and gloom, get ready for a rebound!

That’s because everyone has already gotten the message to sell; there aren’t any sellers left. That’s when the buyers step in and prices start to rise.

The opposite is also true. When the grain fundamentals are really positive and the grain trade is bullish, watch for a high to develop and prices to start moving down. The extreme version of this is what I call the “taxi driver” signal. That’s when you are in a big city and the taxi driver says, “How about that corn market?” It’s time to sell corn futures.

I listened to my mentor and began trading using these concepts. It worked. I was seeing consistent profits.

I became an avid student of long-term chart patterns and long-term cycles. Anyone who has done a chart by hand understands there is something special that happens when you use this old-school approach and chart with pen and paper, rather than looking at a computer monitor. Every hour I spend actively creating and annotating my charts (and there have been thousands of hours in 38 years), I “see” the markets with a part of my brain I don’t believe I reach by passively watching an electronic screen.

My favorite charts

For corn, you can see how reliable the long-term 68-month low-to-low price cycle has been since 1972. The last major low came in late 2008 and the first quarter of 2009. The next major 68-month low is due between December 2013 and March 2014. I have several other shorter-term cycles that all project a low in November or December 2013. These long-term cycles and other indicators are the main reason I look for major lows later this year.

For soybeans, the long-term cycle I have watched since 1969 predicts lows to  come in every 39 months. The last major low came in mid-2011. If you count out the months from the last low in 2011, then the ideal time for the next low is in mid-2014. The earliest I can project the next 39-month low is in the fourth quarter of 2013. However, I work with several other shorter-term cycles, as well, and they all come together to project a low in October or November 2013.  

Three chart signals tell me when prices have bottomed.

  1. If the USDA comes out with a negative crop production or supply/demand report, but prices still open lower and close higher. This has happened many times in the last 38 years.

  2. The first week that prices close above the two previous weeks’ high on the weekly continuation charts. This is an old mechanical indicator, but it works. This is one of the main reasons I keep up with my hand-drawn weekly charts.

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