- New Science in old markets -

Grains

There was a flurry of activity in Grains last week as a new arrangement for the Renewable Fuels Standard was rumoured to be planned/plotted by refinery investor Carl Icahn, who is an adviser to Mr Trump. This caused Corn to rise sharply on Wednesday, as it is the source of bio-ethanol that may now be in greater demand. This rumour also caused Wheat and Soya futures to climb, showing that those markets had been 'caught short' as their own fundamentals will be unaffected by any change.

A short squeeze can start more important moves, so here we look at grains at different time frames. Corn, Wheat and Cotton have all made weekly-scale compressions in the last few months, from which they have moved higher:

Corn, Wheat, Ctn wkly comps

Something similar has happened in the Soya complex, where up-moves began last year after weekly compressions in Soya oil and beans. There has been a more recent signal in meal, which also led to the start of a rise (last chart below) and the price has just dipped back toward the compressed area where we expect support:

Beans, oil, meal wkly comps

So, from these weekly charts we can see that a promising situation has developed, which could lead to more upward movement in price, despite the forecast of ample crops and continued record yields in the 'C3' category, thanks to the increase of carbon dioxide in the air*.

At a daily scale, there are fewer clues. This is normal when signals at a weekly scale have formed and a price move has already developed - we do not get a constant stream of re-affirming signals, just a few 'returns-to-compression' and suchlike. Here is Wheat, which has performed as we would expect in the early stages of an up-move:

Wheat return to daily comp

And now a snapshot of Cotton and Soybeans - there are no other daily signals we can demonstrate in grain markets.

Cotton and 2xsoy ext & comps

So to summarise - weekly scale signals show that more strength is likely in the medium term. Daily signals (although they are few) seem to show that such strength is more likely to occur now than in a few weeks time. Buy dips in Corn and wheat because of the trends already begun and buy Soya if this new compression does indeed break upward. The weekly-scale compressions in Soya meal shown above also mean that strength is likely eventually, but this new Soya bean compression offers the chance to 'time' the entry of a long position a little more precisely.

*. Although higher crop yields are a welcome development for a hungry world, this is offset by the jaw-dropping increase in population that is ongoing. There are 80 million more mouths to feed every year - equivalent to a new Germany. Every five years this adds up to a new America and every seventeen, a new China. Crop yields are increasing more slowly than population but the situation is not clear-cut so the two trends may be in some sort of rough balance -  See this Royal Society article for more