A leading grain industry analyst received a convincing technical indication this morning that grain markets have finally bottomed out and are heading higher.
The December corn contract moved above its September high of $3.67 ½ per bushel, establishing what’s called a bullish key reversal for the commodity.
That is a big momentum swing after bottoming out at $3.18 ¼ earlier this month. Unless something unforeseen happens, corn will end October above last month’s close of $3.20 ¾.
It is a solid technical sign that the corn market has finally bounced back after a steady decline from a high of $8.34 established in August 2012.
“That’s where the downtrend started. This looks like the end of it now and the market looks like it’s moving into an uptrend at this point, bringing to an end this long downward spiral,” he said.
The move is counterintuitive given the massive U.S. corn crop coming off the fields. The U.S. Department of Agriculture forecasts a 368 million tonne crop, breaking last year’s record of 354 million tonnes.
Yet something is enticing commercial investors to direct money into corn despite the burdensome supply.
“Why are they doing it? No idea. But the possibility is the supply and demand situation is nowhere near as bearish as the picture that has been painted in recent government reports,” said Newsom.
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The market could fool people in the coming weeks. The seasonal tendency is for corn prices to move lower during the first half of November as farmers deliver the crop to the elevator network. Newsom is convinced that will be a temporary downward blip.
“This is a market that is ready to get bullish. This is a market that is ready to go up,” he said.
Corn has been the de facto leader in the grain sector since 2005, so he expects other crops will eventually follow suit.
“In time, I would expect to see similar, maybe not identical but similar, patterns start to emerge in the soybean market, wheat market, even canola and bean oil,” said Newsom.
“After years of bad news it’s really interesting to see this development.”
