Don’t count on the December lows holding, says Jeffrey Kennedy.
The American analyst is convinced the low grain futures prices set in December were simply another step toward the bottom, and the present rally will reverse soon.
“We will take out the December low. There’s no question, as far as I’m concerned,” said Kennedy, the futures markets analyst for Elliott Wave International.
“Once we see that new low below the December low, that’ll complete an initial wave down within the Elliott wave context. That will be likely a new low that will hold for the bulk if not all of 2009.”
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That means, in his view, this rally will fizzle and a new low will be reached, but after that, a substantial rally should pull crop prices up through most of the rest of this year.
“We will begin a very lengthy, time consuming, very choppy, very ugly countertrend move up, most likely to the 50 percent retracement of the selloff that we’ve experienced since the July 2008 peak.”
He expects U.S. winter wheat futures to reach $8 to $9 US per bushel, corn to hit $5.50 and soybeans to tickle $12. Then prices will plunge again, dragging soybeans below $6.
Kennedy’s stance is based on a complex form of technical analysis known as Elliott wave principle. He believes the 2008 commodity market peak set a multi-decade top and that wheat, soybeans and corn are now in a multiyear downtrend. However, volatility will take prices far above the lows several times in the coming years, he believes, so sellers will have opportunities to lock in profitable prices.
For the short term, Kennedy thinks this present rally still offers farmers some better prices in the next few days or weeks.
Chicago wheat could hit $7 per bu., soybeans $11 and corn $4.50, before dropping to new lows.
“We’ve got one more last gasp to the downside, then I think the pain will be over for a while,” said Kennedy.
