We mentioned in the last edition on the 22nd February that one of the commodity indices that we follow had made a bottom extension. This was only at a daily scale but we thought a decent bounce might ensue in various commodity markets, which does seem to be happening. Now we look at grains, where we have been broadly bearish for some while.
The wheat market has fallen back to the level of some old weekly-scale compressions. These occurred just before the up-move last year and will now provide support. This alone may be enough to warrant a ‘buy’ but there is no equivalent support level in any other grain. Corn and Soya beans have each fallen by less than wheat although we should note that all these prices are historically still very high. This may mean that another ‘run-up’ may happen as the growing season develops. Any shortfall will certainly bring in another wave of ‘investment buyers’, so the grain bubble may well inflate again.
In the meantime, soya oil remains the weakest of the bunch, as should be expected. There are many other sources of edible oil and their completing supplies held down the price of soya oil in last year’s boom. That should continue to be the case making soya oil the natural short hedge if another bull market occurs.
To conclude, it is probable that we will see some kind of rally from hereabouts, even though we do not (yet) have any bottom extensions. That argues that a lower low is still coming, so any bounce now will probably fade. We would prefer not to choose wheat as a ‘buy’ candidate here, even though it is in support. It went up less than the others in the boom and has fallen more in the reaction so far. Instead we would choose Soya beans or Corn as our candidates, bearing in mind that we only expect a rally that will last a few weeks at most.