Are we listening to the markets?
Oct 06, 2017
Here we are, on the verge of completing the first week of October and what should have been a decent advance in harvest progress. We were 9% behind the average pace on corn and 4% of beans according to the numbers issued on Monday, and while the incoming and/or arrived rains will temper the progress, the harvest is with us, and the psychological implications of that have already been introduced to the market. That said, the price impact has been relatively muted. If we were to close right at this moment, December corn would have lost around 6-cents but remained with the price range of the past seven weeks, November beans would be a bit more than 1-cent higher and December wheat would be 8-cents lower but coming off several weeks of gains. An article in Reuters overnight pointed out an interesting fact concerning current prices levels. Granted this should not come as a shock as it seems we have been pointing out ad nauseam that we have been in a multi-year sideways congestion pattern, but the author brought to light just how flat this has been. If we look back to the first Friday in October last year we would find December corn at 3.40, the first Friday in October of 2015 3.88 and in 2014 the extreme other way with a close of 3.24 for that first week. The average of the three would be 3.50 ¾ and it just so happens that is almost exactly where we are today.
If we complete the same exercise in November beans, we find that one year ago we closed at 9.57, two years ago 8.75 and three years ago 9.12 for an average of 9.15. Today, we are trading around 50-cents higher at 9.69, still within 6% of the average and when viewed on a chart, pretty much smack dab in the middle of the range the November futures have been stuck within for the past three years.
While there is by no means anything that can “assure” us that prices could not exit through the lower end of these extended ranges and to listen to the consensus news that appears to have a myopic fixation on global stocks, it would be easy to be lured into that negative market psychology. Regardless, I have always been a believer that markets will tell us a story if we are willing to toss aside our biases, which are always predicated on what we think we know to be fact, and listen to, or maybe better stated, watch the action as it can tell you about what we do not know or at least do not yet understand. I believe we have the grain and soy markets at the bottom end, (10%) of what is the ethanol-era adjustment in prices and we should consistently find value buying at these levels. I recognize that this tells us little as to when we may begin to see higher prices, and there does appear to be growing number of people who have come to believe that today’s genetics have made crops bulletproof and nearly impervious to bad weather. This reminds of a line from a margarine commercial from years ago which said, “It is not nice to fool mother nature.” We shall see who is ultimately fooled.