Long-term commodity cycles projected an upturn in corn, soybean and wheat prices for 2003. Now the global indicators and fundamentals are in place for higher, more volatile grain prices for at least the first six months of this year.
These indicators flashed buy signals in 2003:
The CRB (Commodity Research Bureau) moved higher in 2003 suggesting the uptrend that started in 2002 would keep going. The March 2003 low held well above the fall of 2002 low, setting up the pattern of higher highs and higher lows. The CRB closed above the two previous weeks' high the week of April 14 and ag commodity prices started a major move up with different sectors leading the rally higher into the November-December 2003 high.
The CRB, and commodity prices in general, could set back into February and March of 2004, but the pattern of higher highs and higher lows is still in place.
The U.S. dollar continued to trend lower last year. It started 2003 at 102.4 and moved lower with the yearly high coming the first week of 2003. The orderly decline had the dollar down a full 12% by December of 2003.To international buyers $7 soybeans aren't expensive when the U.S. dollar is trading at a 12% discount. A continued orderly decline in the U.S. dollar will keep foreign buyers bidding for U.S. farm products.
U.S. and global equity markets turned up in late March 2003 as the Dow Jones Industrial Average held a double bottom at 7,400. The strength in global equity markets reflects an improved economic outlook, suggesting more jobs and increased meat and feed-grain demand. It's the opposite of what happened during the Asian currency crisis when jobs disappeared and meat and feed-grain demand plummeted. As global trade and consumer confidence increases, it's great news on the demand side for U.S. farmers.
Cattle prices soared to new all-time highs. What do cattle have to do with the corn and soybean markets? Plenty. Cattle are still the No. 1 corn consumers in the U.S. and proteins (meats and soybeans) tend to move up and down together.
The fact that cattle moved to new all-time highs by more than $30/cwt. was a wake-up call to all end users. The magnitude of the move and the fact that prices went so much higher with no consumer complaints was a very unanticipated, but positive, signal for all farm prices.
Alan Kluis is executive vice president of Northstar Commodity Investment Co. If you have marketing questions or want more information, write: Northstar, 1000 Piper Jaffray Plaza, 444 Cedar St., St. Paul, MN 55101; call: 800-345-7692 or e-mail: [email protected].
Watch For The Top
It always looks bearish at the bottom when prices are trending lower and the news is negative.
This year the news is positive, prices are trending higher and the news is bullish. Watch out. Chart watchers know it's time to watch for a top.
For corn, soybean and wheat farmers, it's time to stay disciplined. Be willing to make scale-up sales and don't ignore sell signals when they develop.
These are three key chart signals that I'll watch to make old-crop and new-crop sales.
Watch the CRB. When it closes below the two previous weeks' lows and makes a monthly lower close, it's a caution signal for the commodity markets.
Watch the soybean chart. Any price correction of more than three weeks will signal a possible change of trend. Since the major bull market started in July of 2003, most of the price corrections have been 3-5 days. The November price correction of three weeks is the largest time correction since the move started. A correction of greater than three weeks could signal that a top is in.
For corn, the first monthly lower close on the continuation chart could signal a seasonal high in corn prices. With last year's yield, most farmers are in a great profit zone right now, so scale-up sales on any South American weather scares.
The outlook right now is very positive for farm prices and income. Making sales at the right time is a key part of profitable farming. The other: Buy inputs at the right time.