My top three trading rules
The June USDA grain report released earlier in the week was bullish and following the release of the data producers across the nation heaved a sigh of relief. It was feared by many that the report would be bearish and send grain prices lower. In the month leading up to the report, soybean prices slipped more than $1 a bushel, corn dropped $.45 and wheat values were off $.52. The June report was positive for grains plain and simple.
The report showed a greater than expected decline in ending stocks of wheat, corn and soybeans, something not seen in some time. Historically, for any commodity and in particular grains to embark on a significant and sustainable rally, supplies or stocks have to be in a downtrend. It is a downtrend with stocks that eventually leads to an uptrend with prices.
However, grains still face stiff headwinds moving forward regardless of the June report. The main headwind is the trade war with China. Another is an old saying from long ago. “A corn crop is made or broken in July and a soybean crop in August.” In other words, Mother Nature with her whims and ways can turn the grains into a rip roaring bull market if the weather is not perfect this growing season. Or, She can bless the U.S grain belt with ideal weather which in the process will cause ending supplies to swell and prices soften. Or, remain flat.
And the final headwind the grain complex will face is the USDA report at the end of the month that will peg final acres for all major crops. There is a growing conviction that soybean acres will be larger than expectations and corn acres less than expectations. If so, corn prices may fare better into the Fall harvest than soybeans.
The scenario of grain prices dropping sharply into the early June USDA report but still facing headwinds reminds me of a chapter from “Haunted By Markets” entitled, “The Sage of Cooperstown.” from June 24, 2011. Here are the first several paragraphs from that chapter.
“Earlier in the week, I received a letter heaped with criticism as well as praise regarding my weekly newspaper column. Happily, the praise far outweighed the disapproval and consequently, the letter made my day so to speak. Unfortunately, it was sent anonymously so I could not respond and thank the sender. Then I remembered what Yogi Berra, the Sage of Cooperstown and perhaps the most quoted personality of our time once said. Never answer an anonymous letter. I willingly took his advice.
“After following Yogis’ recommendation, I got to thinking that just maybe I should heed his words of wisdom more often. After all, each week I try to make sense about what is taking place with the Big Four: stocks, bonds, currencies and commodities. Keeping a close eye on the markets and offering forecasts that are more right than wrong is not an easy task. I focus closely on details hoping to get the job done right. I take pride following Yogis advice knowing he once said, “you can observe a lot by watching.”
“Two big events, well worth watching loom large. One is the June 30 stocks and acreage report and the other is the pesky high pressure ridge that has been lingering in the Midwest for the past few weeks. Either event has the potential to be an enormous market mover in its own right.
“The upcoming stocks and acreage report should show a historic draw-down in ending supplies of corn and possibly far less corn acres seeded due to excessive flooding across the U.S. A drop in corn supplies coupled with less than expected acres could be a potent, one-two punch in the gut of American agricultural producers. If the report is as bullish as I expect, the ag-landscape in the future will look far different than in past years. Or, as Yogi once observed, The future ‘ain’t what it used to be.”
Yogi was right that the future, “ain’t what is used to be.” But the past tends to repeat itself and actually be, what it used to be. “Haunted By Markets” is the only book of which I know where the history or the past of the Big Four; stocks, bonds, currencies and commodities can be considered a bonafide textbook. It touches on the years 1990 to 2015, is 758 pages long and will keep you busy for several days, learing about history.
In the chapter, The Sage of Cooperstown from “Haunted By Markets” there are a number of other, Yogisms to read and chuckle about. A lot more. However, Yogi once said, “I really didn’t say everything I said.” So take the Yogisms with a grain of salt.
With an important acreage report due soon and the trade war heating up with China, I suggest my three tops trading rules to keep in mind. One, “no one knows for sure when it comes to investing or trading. “ Which means rule two, “always use a stop” makes sense. Rule three, “know your history” speaks for itself because the past tends to repeat itself. And the best place to read and learn about the history of the Big Four in my opinion can be found at www.commodityinsite.com. There is no other book like it. Check it out!