Commodity Insite: Grain rally about to unfold

The strength with most commodity markets early this week was wildly bullish. But the weakness seen with most of those same markets at the end of the week was bearish.

And the weakness uncovered so late in the week has many making the argument that the bull run for commodities has ended, or is on the cusp of coming to an end.

A growing number of voices are claiming, “You can stick a fork in the commodity markets. They are done.”

Early this week, the corn futures market hit a new 10-year high at $8.19 a bushel. Soybean prices jumped to $17.50, while Kansas City wheat kissed $12 a bushel.

Cattle prices for early 2023 nearly kissed $156. Cotton prices hit a new 10-year high.

Crude oil futures were over $104 a barrel, which represents the highest average close in eight years. Natural gas prices rose to a 14-year high.

There are other commodity markets showing solid gains, as well.

The strength seen in the opening days of this week sent the CRB Index, which is to the commodity markets as the Dow Jones is to the stock market, to its highest levels in 11 years.

From Investopedia: “The CRB index comprises a basket of 19 commodities, with 39% allocated to energy contracts, 41% to agriculture, 7% to precious metals and 13% to industrial metals. The CRB is designed to isolate and reveal the directional movement of prices in overall commodity trades.”

And from the beginning of 2022, the CRB has increased 32.22%. The gains this year with the CRB index shows clearly that “a rising tide can lift all boats.”

But after the first few days of the week a number of commodity markets and a few paper markets such as stocks and bonds began to leak.

They began to turn lower in value, which automatically sparked a number of well-respected analysts and talking heads on TV to rush to judgment and argue that a fork can be stuck in most commodity markets.

Can the environment of “a rising tide lifting all boats” continue? Are we truly in a wildly bullish environment where the lofty prices now being seen will last indefinitely?

Will inflation remain hot? Or, will there be a significant decline in the value of most commodity markets that sends the bulls running for cover?

First, it is my belief that the United States and the globe are in the early stages of a commodity supercycle that may run for another decade.

But remember when it comes to markets of all kinds, they rise and they fall. They do not move in a straight line.

This week, for example, was quite bullish for commodities early in the week, but bearish at the end of the week. Further weakness may show up going into early May.

But my work suggests in May and moving forward could be quite bullish, in particular for the grain markets.

Lending long-term support to the grains are several well-known fundamentals. One is razor-thin supplies of corn and soybeans with demand from China being simply insatiable.

Plus, there are major issues with new crop acres that appear to be less than expected for corn, but ample for soybeans. In addition, the weather in the U.S. Plains remains drought-like, which is impacting high protein Kansas City wheat.

Also, the war in Ukraine remains a wild card because they are one of the largest exporters of wheat, along with Russia, anywhere on the globe.

Together, Russia and Ukraine supply more than 25% of the world’s wheat. A serious disruption could fuel higher food prices and social unrest.

The situation in Ukraine is a bullish powder keg for wheat and corn prices and a long list of other commodity markets.

Over the years I have stated time and again, a key date for the grain complex is June 15. If the weather in the U.S. Grain Belt appears threatening, hot and dry, so to speak, around that date, corn and soybean prices will begin to ratchet higher.

All major bull markets for grains — except in 1988, which began in April — began to show strength around June 15 to July 4 and skyrocketed higher. Note that June 15 is close at hand.

To reiterate, markets go up and they go down. There is truth in the old saw, “a rising tide lifts all boats,” which was seen early this week, but the flip side to that old saw is “a falling tide lowers all boats.”

In the marketplace, it is always about the “ebb and flow” of money and expectations that sends values higher or lower.

But understand the world is now in the early stages of a commodity supercycle. Thus, when the tide ebbs, be a buyer because sooner than later the tide will flow back and lift all boats.

I am bullish commodities. The May to June period is at hand, and I am prepared to be a buyer.

The U.S. Grain Belt appears to be abnormally hot and dry this summer. The rally should unfold no later than June 15.