Grain markets have bottomed out and are embarking on a long-term bull run, says a leading analyst.
DTN senior analyst Darin Newsom said corn and soybeans experienced a bullish key reversal in October, ending a two-year downward price spiral and ushering in a new bullish era for grains and oilseeds.
A bullish key reversal happens when nearby futures contracts set a new price low in a month, recover to top the previous month’s high and end the month above the previous month’s closing price.
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“What we did in both corn and soybeans is establish these long-term bullish technical signals that indicate the long-term downtrend that we’ve been in since 2012 has come to an end,” said Newsom.
The reversal pattern is stronger in corn than in soybeans, but the market charts for both crops have given Newsom the technical signals he needs to declare a turning point.
“Certainly this is the type of signal that I look for and that I have a great deal of confidence in,” he said.
The technical pattern emerged first in corn Oct. 28 and was followed closely by soybeans a day later.
“To have both corn and soybeans, to me, gives the grain sector as a whole that much more strength,” said Newsom.
Other analysts have a gloomier outlook, especially in light of the record U.S. corn and soybean harvests and plentiful global supplies.
Chuck Penner, an analyst with LeftField Commodity Research, said corn may have bottomed out but he doubts that is the case for soybeans.
Farmers are already talking about planting more soybeans next year despite this year’s massive crop.
“It looks pretty scary,” he said.
“The last time that ending stocks were as large as they’re expected to be by most analysts in the U.S., we had futures (prices) with a six ($6) in front of them,” he said.
Penner thinks soybean prices won’t fall that low, but he certainly doesn’t expect them to move higher.
“I think there’s another leg down that could have an eight ($8) in front of it,” he said.
He is more bullish on corn because acreage is likely to decline next year and there is an opportunity to increase corn consumption with expanding U.S. hog herds and poultry flocks.
Newsom acknowledged it is difficult to be bullish given some of the supply and demand market fundamentals, but he prefers to rely on technical signals.
“What we have to do is ignore all that because most of it is just noise,” he said. “Let’s look at what the market is saying because ultimately that’s what decides price is what traders are willing to believe.”
Newsom isn’t predicting a dramatic turnaround in prices. The corn market still has fundamentally bearish technical signals in the form of a strong carry in futures spreads.
“It’s not like this market is hugely bullish, but the long-term signals are changing,” he said.
Prices should stabilize and generally start heading higher for years to come, although there will be the usual market volatility along the way.
The seasonal tendency is for corn prices to move lower fall in the first half of November as farmer deliveries pick up. Newsom is convinced it will be a temporary downward blip if that happens.
“This is a market that is ready to get bullish. This is a market that is ready to go up,” he said.
“Long term (two years) we could see corn try to get back up to near $5.20 (per bushel) but it’s going to take some time.”
