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Rich Posson: The bull takes a bow

Agriculture.com Staff 01/22/2007 @ 11:35am

2006 Review

  • The long term minimum objective for corn has been $4.00 basis futures. The high of 2006 was $3.93 for our spot chart.
  • The forecast for drought for 2006-2008 to cause lower corn production did not come to fruition and remains intact.
  • The corn crop condition model allowed for a decline for 2006 but with lower probability compared to 2005 forecast and allowed for an improvement. Crop condition improved for 2006.
  • The long term forecast from 1993 called for a major bull market for wheat during years 2004-2008 with minimum target of $5.00 plus a crop production impact. This forecast was proven correct during 2006 with wheat over $5.00 and a production reduction.
  • The forecast for the long term trend of corn as higher from December 2005 and to perhaps last into 2008 was correct for 2006 in that trend was higher for price.
  • The long term forecast for a recovery for the Posson Disaster Price Index was correct and the index for 2006 rallied from a low of -65 to over 100.

2007 Forecast

  • Corn crop condition model favors slightly higher probability for lower condition for 2007 than 2008. And high probability for a crop condition decline large enough to impact markets and for 2007 or 2008.
  • Weather and production of corn forecast remains with high probability for a crop reduction related to weather 2007 or 2008. 2008 as the deadline year for corn and wheat and one year later for the soy sector.
  • Price forecast allows for 2007 to be a bear market year but with 2008 as a bull market year with potential for record high price. Same forecast allows and prefers for 2007 to be a bull market year and trend to extend into 2008 with potential for $6.80 corn. Soybean potential $8.00 to a new record high with deadline as 2009. Wheat potential is $5.90 to a new record high.

Weather
The Benner Drought cycle is said to forecast two events for the latter half of this decade. Although 2006 was with drought from Texas to the Canadian border the drought did not spread or migrate east to impact the corn-belt in terms of corn production. I assume we have not seen either of the two droughts due now into end of decade and I consider the idea that it will take only one to create a major bull market. The Benner forecast remains intact according to my sources.

El Nino possibilities offer 2007 as trending either way as for an event or no event and as to crop implications. My research suggests that although some researchers suggest El Nino creates good crops of corn from the corn-belt that El Nino events do not necessarily create bear markets. A contrarian could create an opinion that such events create an important bottom for price. I understand that there is some statistical evidence that if El Nino terminates before the growing season that drought can occur despite the "watering" of crop land by the El Nino event.

Proprietary weather research suggests chance that 2005 was a dry year for the core corn-belt, wet for 2006 and can be dry for 2007. This research which is mostly cyclical based does allow for a one year delay for dry conditions and for 2008. Research still points to 80%+ probability for a precipitation reduction now and through 2008. Same research in terms of my Chicago Precipitation Index calls for a cyclical end to the 2006 wet trend. Temperature research offers a trend for the corn-belt that has been catching up with the global warming trend. The corn-belt had been lagging the US warmer trend for some years now and more so during the summer growing period. A warming trend such as this could be a sign that the corn-belt is preparing for a hot and dry summer.

Global Warming A 1,000 year cycle of warmer than normal temperature peaked in the years of 1,000 and is due to peak this century. Research shows that this cycle can run a wide range of time to peak or bottom or that there is a tendency toward after shocks or secondary tops in that important temperature peaks can be found as late as years of 1300. The trend from the top was first for not so above temperature and then cooler than normal temperature climaxing with the Mini Ice Age of the 1600s. Trend has been warmer since then with corrections during the 1700s and 1800s followed by acceleration from shorter term cyclical turns during the 1930s, 1980s and 1990s.

Use of the shorter cycles suggests timing of the 1,000 cyclical warm trend as not due for a top (hottest) until the 2030s the earliest. With this cyclical trend there are phases of wet versus dry conditions as well as corrections of short term periods of cooler temperature. This decade could be a transition from a wet period (1950s to 2000s) to a dry or less wet period into the 2030s. Research such as this does correlate with bullish cyclical price possibilities into the 2030s. Although I must consider the possibility for global warming to interfere with the Benner cycle and proprietary studies I must follow the higher probability for a negative crop impact for 2007 and or 2008. In addition on going cyclical price research offers a 170 yr price cycle that may relate to the same cycle found in climate research and could relate to an extreme reduction in production of grain some where on the planet. And this cycle structure is due for this decade.

2006 Review

  • The long term minimum objective for corn has been $4.00 basis futures. The high of 2006 was $3.93 for our spot chart.
  • The forecast for drought for 2006-2008 to cause lower corn production did not come to fruition and remains intact.
  • The corn crop condition model allowed for a decline for 2006 but with lower probability compared to 2005 forecast and allowed for an improvement. Crop condition improved for 2006.
  • The long term forecast from 1993 called for a major bull market for wheat during years 2004-2008 with minimum target of $5.00 plus a crop production impact. This forecast was proven correct during 2006 with wheat over $5.00 and a production reduction.
  • The forecast for the long term trend of corn as higher from December 2005 and to perhaps last into 2008 was correct for 2006 in that trend was higher for price.
  • The long term forecast for a recovery for the Posson Disaster Price Index was correct and the index for 2006 rallied from a low of -65 to over 100.

The production forecast for US corn remains bearish production and bullish price in that statistics in relation to cyclical structure suggest 80%+ probability that production will decline by large enough amount to be referred to as a problem year. A deadline of 2008 is also used. Current trend has been lower since the record high production year of 2004 and this trend offers evidence the forecast is correct.

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