2008 New Years Report – Agricultural part I (grains)
The agricultural commodities market is the oldest and most versatile of the commodities futures markets. 2007 saw a huge price move to the upside in some of the agricultural groups, while others have been more bearish in their price movement. Due to the diversity of the agricultural commodities, we will be looking at them based on the traditional grouping of grains, meats and softs or exotics. Even though those are all considered agricultural in their nature, and are in many ways dependant on each other, the essence of the production and climate conditions are such that they correlate better with one product than other.
Grains have seen very favourable price moves in many of its products, the soy complex, corn and wheat being the champions of the group. Most of 2007 has been a bullish year and 2008 has begun with a very bullish fundamental attitude. But some corrections could be inline for some of the products.
Barley
After a huge price move to the upside in October 2006, after having in 2005 confirmed a support area that was made by the top of 1992, later established further with the low of 2000, barley fell into a choppy trade for 2007 not being able to break the highs of 1996 and 2002. For any long term move to the upside to manifest it self, a solid brake of that resistance has to be made. Two tops having formed on the weekly charts in early July and late September 2007, will have a lot to say about the potential for the barley. These tops will be tested now in the next few days and unless the market manages to set firm stops above them, the barley could be in for a rather prolonged cooling period. The outlook is not too positive as the daily price movement has not shown strong bullish characteristics. The year 2008 could see lower prices in the barley market, but if the next resistance area is broke, it could mean some good potential for an upward move.
Canola
Last year was a continuation of the bull in 2006, which continued from a low set in December 2005, the lowest price since 1987. After a small correction period the first four months of 2007, canola reached its highest price since 1994 without surpassing the top made that year. When looking the potentials in 2008, the long, medium and short term indications are favourable for a continued bull. A correction could be expected in the next few weeks, especially when the top of 1994 is reached. That area could pose a threat to the bullish sentiment in the market, but as the long term indications seem to favour a continuation of the bull run, the high of 1994 will most likely be passed setting the high of 1984 as a target
Corn
After having spent the year 2005 trading in a low range since the end of a minor bull run in 2004, a bull that set a different tone to the low prices of corn since 1998 when the market ended the bear run following a high in 1996. Apart from the years from 1998 to 2006, the market had not seen so low corn prices since 1986 to 1988. With a spike in December of 2005, the market began to rise and after a brief four months pause in the middle of 2006 corn rallied to set, in February 2007, the highest prices in the last 25 years, excluding the bull run of 1996. In March 2007, corn went into a correctional move and made a classic 50% retracement ending in September 2007. Corn then ended the year by passing the high set in February, and with a firm close above it, set the move for 2008. With a price of just under 555, set in 1996, we have a target for the year 2008. After the firm correction in 2007 and firm passing of the high, the market seems in good form for a continued bullish run toward new highs. Even though there is a possibility for a minor correction or pause in the short to medium term, a general bullish sentiment is to be expected for the year 2008. The corn is being affected, both by shortage of food and energy, setting a strong fundamental support to the bullish sentiments in the market.
Oats
Oats have been bullish since the beginning of 2001, with a minor correctional bear between the middle of 2003 to the middle of 2005. The year 2007 can also be seen as a cooling of period for the oats, as it traded mostly sideways not able to break through a resistance point set by the high of the 1995 to 1996 bull run. In December the market managed to set a firm close above the previous high making it the highest close since 1988. Even though there are possibilities for a small correction in the near term, the medium to long term outlook is supportive to a continued bull in the year 2008. Undoubtedly the market will set its eyes on the 1988 high.
Rough Rice
When looking at rice from a long term standpoint, its been quite volatile. But looking at it on a daily to weekly basis, the upward trend has been quite firm. After a rather good upward move from the beginning of 2003 to April 2004, rice went into a correctional bear mode that settled in July 2005. Since then the price has been moving upward at a steady phase until in November 2007, it set the highest price the last 25 years. Having passed all relative price limits, there is no way to say how far it will go as every new price is a new highest high. Despite good potentials, there are some indications that rice will be heading into a correctional mode or at least a cooling period during 2008.
Soybean Meal
Like other commodities in the soy complex, meal has been rallying in the year 2007. Even though there are short term indications that meal could go into a correction in 2008, a long term correction seems unlikely, but it can’t be ruled out. The bull run that started late 2006 has not manage to pass the high of 2004, but has just managed to close above the high of 1988, which was the high before the high made in the bull run of 2003 to 2004, when looking back last 25 years. What meal does will in some respect be coherent to the other soy commodities, but all of them have had a very good run in 2007, without any major correction in the price movement. As mentioned before, there are indications of a short term correction, but a strong short term correction could manifest it self in a correction in a mid and even a long term timeframe, lasting several months. Any change in the prices will most likely be preceded by changes in the soybean oil.
Soybean Oil
Being the first of the soy complex to hit the highest high of the last 25 years, soy oil has been leading, in many ways, the bull run of the soy complex. There are indications of a correction in the soybean oil, correction that could be on the larger scale. This could push the other commodities in the soy complex, into a bearish path, that could put a halt on the present bull market in the soy complex. On a short term basis, a support could be expected at around 47, 40 and 38 cents. These support levels are in line with the support on the weekly chart, with the 38 cents being the strongest of the three. On the monthly chart, the 38 cents area is symbolic in the respect that the soy oil price had their only pause around this price are since October 2006. The 38 cents would also be about 50% retracement from the present high, when measured from the low of February 2005, strengthened by the top of the 2004 bull run which was around 35 cents. Setting a bearish tone for soy oil in 2008, there are indications that soy oil is going into a bearish mode that could last the major part of 2008 with the price target being 35 – 38 cents. Even with this bearish turnaround, it would only be a correction with higher prices to be set in the following years.
Soybean
The present bull run in soybeans began in September 2006, setting, in November 2007, a new highest high the last 25 years. December 2007 and January 2008 have since been pushing the prices higher. On a short term basis, the bullish sentiment has lost some power and a possible correction could be at hand. This correction could be in line with a reversal in soybean oil and could pull the soybean prices with it. Soybeans are the product of which both soy meal and soy oil are based, making them quite correlating in their price moves. Usually one leads the others and when the leading commodity ends a bull or a bear run, the others follow. If soybean oil halts its move to the upside, a reversal is likely to affect the other soy products, sending them into a bearish spin.
Wheat
There are three exchanges where it’s possible to trade wheat futures, CBOT (Chicago), KCBOT (Kansas City) and MGEX (Minneapolis). All three contracts have been showing similar price movements, beginning a bullish run around September 2005, with CBOT wheat being the last to start the run. All three have since run the same bullish run until in September 2007, when CBOT and KCBOT wheat began to show topping signs. MGEX wheat made a further upward move, becoming the longer running bull of the three. When looking at wheat on a short term basis, a certain topping formations can be seen in the CBOT and KCBOT wheat. These formations are not as visible in the MGEX wheat. When looking at the weekly charts, all three of them show some signs of a possible reversal in the mid term. All three of the contracts have broken through the highest prices the last 25 years, making it difficult to estimate the possible high of the present run. But the market seems to be slowing the run and a reversal or a sideways trading pattern possible in the beginning of 2008. A correction that could take some months to finalise it self.
