Grains: There’s Always A Bull Market Somewhere…
No doubt about it, overall commodity performance has been abysmal as of late. West Texas Intermediate (WTI) crude is down a whopping 13% in the past month. Platinum, silver, and palladium are down 8%, 7%, and 5% respectively.
A surging US Dollar, along with European growth fears, has investors essentially throwing in the towel on these economically sensitive assets.
But before you think all is lost for commodities, check this out…
There’s one group of hard assets that’s performing quite well over the past few days…
…grains.
After a brutal summer of selling, corn, soybeans, and wheat are finally showing signs of life. In fact, corn is up 7.1% since the start of October while soybeans and wheat have rallied 3.6% and 3.9% respectively.
See for yourself…
What has grains on the upswing?
As you may remember from recent reports, these commodities hit multi-year lows in late September. A near perfect planting and growing season for US farmers has the United States Department of Agriculture (USDA) forecasting record crops.
In fact, the USDA sees 14.4 billion bushels of corn and 3.9 billion bushels of soybeans being collected by US farmers in coming weeks- all time highs!
Of course, abundant supply projections had investors dumping these commodities at a feverish pace this summer. Both corn and soybeans plummeted 40% from early May to late September.
But here’s the deal…
Extended bouts of wet weather across key growing regions are hampering the fall harvest. As a result, investors are now sending grain prices higher. With mature crops ready to come out of the fields, an extended harvest delay may hurt yields.
While this weather uncertainty will likely prove temporary, we could be witnessing a long-term bottom in corn and soybeans.
You see, grains simply got too cheap in recent trading. At $3.20 a bushel, plenty of hard working American farmers are producing corn at a loss. You can bet these farmers will shy away from overplanting this commodity next year.
In other words, next year’s planting season will likely see a big downturn in corn acreage.
With that in mind, take a look at a chart of corn…
As you can see, corn is rallying now that the red resistance trend line from the May 2014 high is broken. While a continued surge to test yearly highs is out of the question, the recent $3.20 low may prove to be a long-term bottom.
To sum it up…
The entire grains complex had a tough summer thanks to bearish supply/demand data. But with harvest delays and prices recently hitting 4-year lows, there’s a very good chance these commodities have seen the worst.
Until Next Time,
Justin Bennett
