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| In order to attempt some rational valuation of where we are, versus where we have been in these grain markets, I think it important to view a larger picture.
The low prices in HRW were set in 1999 & signaled a longer term technical breakout in 2005, for a variety of reasons.
The low prices in Corn were set in 2000 with a 2006 technical breakout probably related to the new demand element of ethanol.
The low prices in Soybeans were set in 1999 with the initial technical breakout in 2002, for supply reasons and later the new demand element of bio-energy.
Most always, the technical action of a market will provide a buy-sell signal before the fundamentals are fully recognized by everyone.
The other interesting feature is the relationship between the aforementioned markets, crude oil and gold.
In November of 1998, 24 BBL’s of oil bought an ounce of gold. The relationship is currently at 8.5 BBL’s of crude having a range these previous 9 years between 8.5 – 12 BBL’s
In November of 1998, 126 bushels of corn were required to purchase an ounce of gold. Currently, 208 bushels are required having a range these previous years between 140 bushels and 298 bushels.
In November of 1998, 88 bushels of KC wheat were required to purchase an ounce of gold. Currently, 91 bushels are required with a past range between 85 & 174 bushels.
In November of 1998, 46 bushels of soybeans were required to purchase an ounce of gold. Currently, 77 bushels are required with a past range between 57 & 115.
I conclude a few thoughts, which could also be meaningless. The wheat bull market is aging. Technical sell signals, when they appear, should be taken seriously. It would not be a time to “hang on for better prices” as that might be pure fantasy. In terms of gold, wheat is again getting pricey.
The soybean market is a different animal with a wide past price range; however, it too is aging. Another sharp leg to the upside may prove a multi-year high.
Corn still appears to me as though there is upside room, except why? While I have maintained a friendly posture to corn, I have not expected much on the upside and the market is acting much better than I had anticipated. What is going on? The recent weather is an influence, but the crop will be harvested and allowing for some field loss and quality issues, it will remain a large crop.
Of course, if crude oil may now be in the final stage of forming a top, these relationships can change rapidly. But, the crude may not be forming a top…who knows? These are high risk times. When, and if, some of these extraneous markets change, agricultural prices will, one would think, be affected regardless of short term supply/demand conditions; with one glaring exception & that is world weather.
There is always that possibility we are indeed entering a new valuation phase for agriculture. I have heard that story, “things are different,” during every boom period over the past 50 years; thus far, we have always suffered the anguish of a later bust period.
There is a G-7 meeting this weekend & while everyone is whining about the failure of the Chinese to revalue the Yuan and all Westerners talk “wanting a strong dollar,” The reality is, we don’t know the “real back room agenda.”
Overnight, the wheat market acts like it has some legs, soybeans seem to struggle; these two markets need to show some real leadership in the next few days. AND, this may occur. Bottom line: we all have to kill our own snakes.
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Random Musings of an elderly person
