After being a bear in the grains since late summer 2012 and making major sell recommendations at every major high, I am retiring from the bear camp.
I am now a grain market bull. When I made my bubble top call in the grains in late summer 2012 I noted: “Major tops occur when the greatest scarcity is imagined by the market — that time is clearly now”. Today, I will say the following: “major grain market bottoms occur when the greatest surpluses are imagined by the market — that time is from now to the next 60 days.”
The crash in grains from the spring highs, which I strongly recommended everyone sell, is a consequence of planting too many acres when set against perfect El Nino type weather. Over the next 45 to 60 days the market will assuredly imagine the most bearish over supply situation possible if they have not already done so.
This means that the next three to four months should offer a major low in grain prices and a strong possibility of a bull market in 2015, which has been my long term forecast since late last year. Fundamentals heading into the latter half of 2015 look very bullish.
Supply/demand spread sheets that the analysts will use to support ill-advised bearishness will not be helpful. Spreadsheets will never allow you to buy a bottom in grains. At the bottom there is no hope that fundamentals will ever improve.
Thus, one must seek other tools and indicators that have had a pristine track record in picking major lows in grains against a mass bearish psychology.
They are cost of production, relative prices to the CCI (continuous commodity Index), and the Smart Money indicator. This past week all three indicators have flashed major buy signals for the first time since the first half of 2010. That was an awfully good time to be buying grains.
End users should use the next three to four months to procure short term feed needs and long term feed needs. You are not likely to get a better opportunity. Make sure you utilize a methodical averaging in strategy over this time period. Over-buying at any one time is a sure way to make a blunder.
In my report, I go over each of these indicators and how well they have picked major lows in grains for 35 years. These are the best set of tools to analyze grains when there is blood in the streets.
If you are an end user, waiting to buy is a risk. While I am not expecting a bull market overnight, history is riddled with bull markets that can come out of nowhere and surprise everyone. Do not become complacent in believing that the current cheap grain prices are going to last forever.
I hope you find this report helpful in your business and investments. I will be sending out a special update on Monday when the next COT report comes out to update the smart money indicator. If my estimates are correct, this will be one of the strongest buy signals seen in 35 years.
Grain markets right now are as cheap relative price wise as they were in 2010. It is not wise to look a gift horse in the mouth. Only 2005/2006 offered cheaper relative value prices. The worst case scenario, if we were to go down and retest the all-time low relative prices seen then, it would mean $10 per bushel beans, $3.50 per bushel corn and $5 per bushel wheat. Those levels are not too far away from where we already are and that would be the extreme case. The probability of that happening is very low unless a global financial crisis occurs or unless U.S. yields blow the top off of historical precedent.