The bull market has reemerged this week in grains, with new recent highs in corn, wheat, and soybeans. All commodities have regained the bull market status after small losses last week. The tight stocks scenario is playing out at the perfect time for farmers, as insurance prices of various commodities is now being set during the month of February.
Bull markets continue for now in grains, with wheat leading the way. Recent global weather concerns impacting wheat supplies registered to the market, with Australian news of a sale of feed wheat to China. China seems to have an unconstrained appetite for grains, gobbling up just about any source for their huge demand for feed (they current import about 60% of US exports of soybeans). It's the Chinese wild card on demand that seems to have the world scrambling to find available supplies to tie us over until next year.
Corn prices reversed yesterday after running to new highs, closing with sharp losses and forming a downside daily reversal on charts. But this has happened before, most notably on the day of the November crop report, when prices reversed and dropped sharply over the next couple of weeks, only to regain its footing and rally to new highs. What will happen this time?
Grains finally broke out of their previous ranges, with corn and soybeans leading the way Wednesday, with rallies to new highs in both grains. That was a very positive sign, and very encouraging for bulls, as last week's downside reversal was left in the dust - and now becomes a distant memory as long as grains stay above the previous highs. Not only have grains broken out into new high territory, but the CRB index has also bounced back above the 2008 highs - indicating that commodities could have a long ways to go up yet.
Grains are slowly breaking out of their recent price ranges, with soybeans and corn running to new recent highs lately on continued dry weather in South America. Argentina, especially, is experiencing dry weather in some main growing areas, helping many to trim their crop production estimates for both corn and soybeans. Dry weather during this critical time period certainly can trim production outlooks.
Grains are all approaching their recent highs. Wheat, corn, and soybeans are within striking distance of the two-year highs made for all three crops. This indeed is going to be a very Merry Christmas for most farmers, as prices have not sat at these price levels much during the history of grain trading (perhaps a few months).
Grains have some great examples in the commodities of just how volatile things can be, as sugar, cotton, and coffee all are giving the grains a sign of the type of strength that commodities can get when people are short supplies.
Grains have continued their recovery this week, gaining back even more and approaching the yearly highs again in corn and soybeans, with wheat running back to the old highs. This was quite a retracement for wheat, gaining a $1 in just over four days of trading! After challenging those highs, they've retreated a bit, but it is impressive to see these healthy gains on the strength of the Australian crop problems with their recent wet harvest.
Grain prices have had a healthy run higher in 2010, in spite of relatively decent US yields of most crops. That has allowed farmers to have another good year in 2010, not quite as good as 2008, but profitable nonetheless.
Last week we commented on the disappointing reaction to the USDA November report, and how it had showed the first indication that the bull market was tired. Since then we have formed a weekly downside reversal in corn and wheat (both last week) that indicated a potential top had finally formed in these two markets. This week soybeans have found tremendous price weakness such that we've dropped $1.50 from the most recent high in only 5 trading days!
Our election is over, and while the Republicans can celebrate their wins in the House and gains in the Senate, it might also be true that now that no one party controls the House, Senate, and Presidency that there will be more gridlock in Washington. Gridlock might not be all bad, though, as generally the US economy is stronger the less government seems to do.