Market analyst: Market top

Ray Grabanski
Special to the Farm Forum

For at least six months, the “Wrong Side Randys” of the world have been calling for a market top — mainly because they wrongly sold out long ago — and then the market really started to rally.

Now, stocks are at new highs.

Right now, the market has been unable to go higher over the past six weeks and has stalled out at old highs. Corn has a potential head and shoulders top formation over the past six weeks, with soybeans a double top formation five weeks apart that also is ominous for technical traders. A number of other confirming factors of a market top occurring include the shrinking open interest, as large speculative traders continue to liquidate long positions.

Small traders tend to push the market higher in night trade and low volume times, only to meet with massive selling/liquidation by large traders. We have a divergence of old and new crop values, with bear spreads working (new crop gaining on old crop values). That is not the sign of a vibrant, demand-led bull market. In contrast, it’s a sign of an emerging bear market.

In my mind, that spells trouble for market bulls. Add to it private forecasts of South American crops rising back up to near ‘trend’ yields. If you want a confirming factor, just start reading the advice of “wrong side Randys”. If it is a top, they should be talking about another leg higher {span id=”docs-internal-guid-c28088f2-7fff-27b3-b73c-abaa0cff963e”}{span}—{/span}{/span} they have a knack for staying on the wrong side of the market.

For now, South American weather remains mostly favorable in Brazil, with below normal temperatures and above normal precipitation {span id=”docs-internal-guid-c28088f2-7fff-27b3-b73c-abaa0cff963e”}{span}—{/span}{/span} at least favorable for the growing crop, but not very good harvesting weather. Argentina has some adversity forecast yet with mostly above normal temperatures and below normal precipitation that will likely further stress crops there over the next two weeks. U.S. weather is variable, with above normal temperatures returning for the next two weeks and very little precipitation in the western corn belt. The drought is still alive and well in the western corn belt and Plains.

Wheat and soybean exports are slowing, while corn is still OK. Wheat exports are running 4% behind normal vs. only 2% last week, with USDA guessing they will be up by 2%.

Corn exports are up 81% (versus 80% last week), with USDA guessing corn exports up only 46%. Soybean exports are up 76% this week (down 1% from last week) versus USDA guessing up 34% for the year.

Brazil soybean harvest is 25% done vs. 40% at this time last year, so they are suffering harvest delays, with most crop estimates around 132 mmt in Brazil, and 46 mmt in Argentina. The Argentine crop is rated only 15% good/excellent, versus 19% last week and 64% last year.

Corn prices are lower on expectations of larger South American exports. Planting has begun in the northern hemisphere, with 3% of the Texas corn crop planted versus 7% average. Brazil’s second crop corn is 39% planted versus 67% last year. The later they plant, the more risk the crop has, so this is getting extreme.

Argentina’s corn is dry with ratings 30% good/excellent versus 24% last week and 59% last year (bad but improving). May wheat is finding some support with lower wheat crop ratings, with Kansas at 37% good/excellent (down 3%), Oklahoma 46% (-2%), and Texas 28% (-2%).

For financial markets, it is becoming crystal clear to any trader that the pandemic is over. I think that governments caused the market crash, not COVID itself.