Market analyst: Is this a market top?

Ray Grabanski
Special to the Farm Forum

Last week was the first time in this long rally that grains suffered a significant setback, with December corn down $1.11 from its $6.38 high, resulting in a near 13.9% drop.  July corn dropped from its $7.35 high to $6.33 low, down over $1 in just over a week.

These changes indicate that the corn market has likely topped. 

Wheat prices were similar, dropping from July's $7.69 to $6.93 for a 8.6% decline on the Chicago Board of Trade.  Minneapolis September spring wheat also dropped nearly $1 from its $8.03 high to $7.09 low. Just as when wheat followed corn higher, it following it lower, too.  

Soybeans have not dropped as much so far, with the July high at $16.67 and low of $15.75.  November soybeans dropped a bit more, from a high of $14.61 to $13.65.  That doesn't meet my criteria for a market top of 7% drop from high to low (a filtering technique), but it's close.  So, it's a little less clear in the soybean market whether the top has occurred, but with these kinds of drops from high to low, we certainly are on alert that something is about to change in the grain market.  

During the recent break, its seems like we trade each day in the same pattern: The night session starts unchanged, but then huge buying hits the market to drive corn, soybeans and wheat about 10 cents higher in a very short period of time in the low volume night trade.

Then, the market stalls as more long positions are liquidated by the funds. It's starting to appear that the funds goose the market in overnight sessions, and then sell in the day session in order to liquidate the most long positions they can as they exit the market with huge profits.  

Last week pretty much showed it's a likely top in corn and wheat, with soybeans not quite dropping enough to declare a top yet.  We may see a bounce back of 50% (or even 62%) from the high to low this week as the market makes another attempt to convince us that we are in a drought.  The only problem is that the forecast the next two weeks is for warm and wet weather, with soil moisture continuing to improve in this period while crops are planted and germinating.  U.S. winter wheat conditions remain strong, with more rains this week in spring wheat country.  

Crop progress reports from May 17 show an early planted crop, with corn 80% planted (12% ahead of normal), and soybeans 61% planted (24% ahead of normal).  Only cotton (at 38% planted or 2% behind normal) and sorghum (27% planted, or 5% behind normal) are behind normal planting progress.  Oats are 92% planted (8% ahead), spring wheat 85% planted (14% ahead), and barley is 83% planted (7% ahead of normal).

Topsoil moisture is still 66% rated adequate/surplus (same as last week) while subsoil moisture is rated 53% adequate/surplus (also unchanged from last week), so the  moisture condition is still good in most of the country.  That doesn't make North Dakota or Canada producers feel any better, though, as its still quite dry in this region.  

Look for another volatile week of trade, which is typical during a market top, as if indeed we formed a top last week, we will see heightened volatility with violent recoveries, followed by violent breaks as well. It's likely in a week or two that we will have 50% of the corn emerged so we will get crop conditions soon, with it likely to show the same as winter wheat, an above average crop with potential for bumper yields in 2021. That is not in line with $6.00 corn, and could be hazardous to bullish traders' financial health.  

When everyone is bullish, it's a very dangerous time to be owning grains and commodities.