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Buy the rumor, sell the fact

The August crop report may turn out to be the "fact" that was needed to put a bottom in corn and soymeal.

August 12, 2014

3 Min Read
Buy the rumor, sell the fact

That’s an old saying in the grain industry that most of us have heard many times throughout our life. The reason we keep hearing it is because it works. The August crop report that was released an hour before I am writing this article, may turn out to be the “fact” that was needed to put a bottom in corn and soymeal. That said, I emphasis the word “may.”

Easy part is over

Some may argue with me, but the corn market in my opinion has been relatively easy since the fall of 2012. The top that was established at over $7.50/bu. was a classic short crop top and as the other old saying goes, “short crops peak early and have a long tail.” At this stage, we may be nearing the end of that long tail. No confirmation yet -- but the odds for pressing the bear side with cash corn nearing the low $3 range is starting to get a little dangerous.

Many buyers are soon going to want to be attempting to pick a bottom in both corn and soybean meal. Eventually there will be a bottom. History is a strong indicator that picking bottoms is not normally very economical and in some cases can be very costly. Bottom picking and short covering could cause a fairly significant rally in both corn and meal due to the overbought conditions, but it is hard to argue for higher prices with record crops on the way and a lot of cash grain to be moved at harvest time, with a clogged railroad system.

Big opportunity

The clogged railroad system is going to lead to a very wide basis in many areas of the Midwest, particularly the Upper Midwest. This is going to present nearly unprecedented buying opportunities in corn for feed companies and ethanol plants. There won’t be enough storage available for the corn crop nor enough rail cars to move it. The basis gains in corn this year may well reach record profit levels.
Another old rule of thumb that we should remember in the grain markets is that “markets will give you six minutes to sell the top and six months to buy the bottom.” In other words, tops are sharp and narrow and bottoms are long and flat.

It is doubtful that the way this market bottoms will be any different than past market bottoms. There will be at some stage an exhaustion bottom where all the news gets even more bearish than it is today, which may well come in early harvest. The market will then bounce back and scare all the super bears to death, and then settle back and test the lows going in to a long sideways trading range. There is no need to worry about being a super aggressive buyer and missing the bottom. This market will give all buyers a long time to buy the bottom. Just because a market looks “cheap” compared to where it has been is no indication it should be bought. Patience, patience, patience.

Richard A. Brock, president of Brock Associates, has been publishing The Brock Report for more than 30 years. He continues to lead the Brock Associates team and is responsible for the development of marketing strategies. Richard also serves as a commodity marketing advisor and price forecaster to many of the nation’s largest agri-business firms, food companies and financial institutions.

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