Your Profit

Agriculture.com Staff 05/13/2009 @ 2:10pm

"With the crash on Wall Street, do you still think grain prices can rally this spring?" That was the question from a young farmer in northwest Iowa on March 2, 2009, the day that the grain and stock market bottomed.

Yes, I told him, this is probably one of the worst days of the year to sell. And if you are a livestock feeder, it is one of the best days of the year to buy.

I study a lot of long-term stock and commodity charts, going all the way back to the lows after the Depression of 1939. The collapse in the stock market is the most severe I have ever been through in the 35 years that I have traded stocks and commodities.

I want to take a long-term look at stock and commodity prices and then give you some common-sense suggestions on how and when to get your cash grain and new crop sold.

In the last 30 years, there have been two comparable sell-offs in the U.S. stock market. From the spring of 1973 to October of 1974, the S&P 500 stock index dropped by 48.2%. The economy was hit with higher oil prices and a sharp increase in inflation rates.

The next major correction in the stock market was from January of 2000 to the October 2002 low when the S&P 500 stock indexes fell by 49% in 22 months to the October 2002 low. The commodity market timing was similar in that the Commodity Research Bureau (CRB) index put in a major low in September of 1973 at 185. Within six months, commodity prices had increased by 12%; within one year, the CRB was up by 22%.

From October of 2007 to the low in early March of 2009 the U.S. stock market fell 55%. The stock and commodity markets both appear to have bottomed in early March of 2009.

At this time, the S&P 500 is up by 24%; the CRB index is up 13%.

The U.S. markets are lagging the performance in many other nations. In China, the stock market is up 30% since the first of the year. If the CRB rallies like it did in 1973 or in 2002, it sets up price targets of 244-276.

What does this mean for corn and soybean farmers? If these same percentage rallies are used, it sets up targets of $4.14 to $4.69 for corn futures and $9.08 to $10.20 for soybean futures. The lower targets have already been hit, and the top price targets are possible on any spring-summer weather scare.

"With the crash on Wall Street, do you still think grain prices can rally this spring?" That was the question from a young farmer in northwest Iowa on March 2, 2009, the day that the grain and stock market bottomed.

I use many different chart analysis methods and find that no one tool works all the time. At this time of year, I will be using price channels and the Elliott Wave method of analysis to get crops sold on rallies. Because none of these methods works all the time, I will also be using my historic seasonal odds studies to make incremental sales from mid-May through the end of June.

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