Crop prices might drop a little lower. Then we’ll move a bit higher. Then we’ll take quite a drop lower. Then we’ll spend a lot of time getting a bunch higher. Then we’ll fall off the cliff again.
How’s that for a forecast of crop prices for the next couple of years?
That’s a way of summing up the outlook of Jeffrey Kennedy of Elliott Wave International, one of the most interesting analysts I speak to. He was expecting the present setback from the mid-december rally (I know this because I spoke to him last week before the reversal), and is now expecting another move upwards to some even better prices than reached before Monday, but then something no one holding crop wants to hear:
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“We will take out the December low,” he told me yesterday. (I called him back only a week after my last call not so that I could congatulate him on being right about the short term call, but because I had lost all my notes from our first conversation and needed to make sure I had some of the numbers right.)
Taking out the low means going lower. That’s something few people are expecting.
“There’s no question, as far as I’m concerned,” said Kennedy, who is based in Gainesville, Georgia.
Kennedy’s calls are based on Elliott Wave Principle, which is a theoretical approach to market action that is far too complex and arcane te explain in this post, but if you’re interested in checking out what it is, go to www.elliottwave.com
It’s all about impulse and corrective waves flowing in a predictable 5/3 pattern. Unfortunately for the grains and oilseeds, they’re caught in an overall downward wave structure, Kennedy believes, but there will be substantial rallies within that structure, which is something farmers should take advantage of.
Kennedy believes there will be a short spurt of higher prices once the present little correction is over, taking CBOT wheat to around $7 per bushel, soybeans to $11 and corn to $4.50. (These are ballparky numbers.) With Chicago wheat now at $5.68, soybeans at $9.94 and corn at $3.65, that’d be quite a substantial short term rally.
But get out of the way fast, Kennedy warns, because once that little surge is over, prices are going to move down fast and break through what farmers had hoped were the lows in December. “It’s not a question of if, but when,” said Kennedy.
That’s not a time to give up hope, Kennedy told me, because after that ugly low a comparatively huge rally will likely occur, taking up most of 2009 and possibly into 2010. “Once we see a low beneath that initial December low, that will complete an initial wave down within the Elliott Wave context. That will be most likely a low that lasts through the bulk if not all of 2009 as we begin a very lengthy, very time consuming, very choppy, very ugly countertrend move up, most likely to the 50 percent retracement of the selloff that we’ve experienced since that July 2000 peak.”
What that would mean is farmers would get another kick at prices like $8-$9 wheat, $5.50 corn and $12 soybeans in 2009. Obviously Canadian echoes of these crops, like hard red spring wheat, barley, oats and canola would not exactly mirror the action in U.S. crops, but a 50 percent rise in the crops complex would be a welcome relief to the recent slump.
But Kennedy doesn’t expect to see prices reach last year’s peaks, and once that retracement is done the momentum will swing back around downwards and take crop prices back down to the lows. You don’t want to be there with unpriced crops in your hands when we get there, he cautions.
His long term view – and I mean going out 10 or 20 years – is for big swings in the market, but no chance to break the 2008 highs. If you’re waiting for those to be exceeded, you won’t be doing it with Kennedy in your corner.
“I believe that the high we set in 2008 is a multi-decade top, and I believe it’s going to be in place for a long, long time,” he told me.
That’s why, to him, it’s key to take advantage of rallies. This is not going to be a buy-and-hold market during the lifetime of most farmers. It wasn’t last summer, was it?
