Someone once said, “The only thing that we have ever learned from history is that we learn nothing from history.” Investors (and farmers) are always bearish at bottoms and bullish at tops. The news is always bullish at tops and bearish at bottoms.
It is also important to remember that in bull markets, new bullish news is needed constantly to keep a market going higher. In bear markets, no news is needed at all.
We've also just gone through a two-year period when producers, many of whom never forward contracted, sold aggressively when corn prices were at $4 or lower and soybeans at $8 or lower. Now that corn is over $7 and beans are over $15, ironically no one wants to sell anything. Once again, human nature never changes.
The accompanying chart is both revealing and concerning. When you compare this year's bull market in corn to the bull market of 1995-96 on a percentage change basis, these markets have been tracking nearly identical. What's scary is we have just gone through the time period when history would indicate that a long-term top in the corn market has been made.
At this stage, are there bullish enough fundamentals to keep the market going up or will the market fall from its own weight? What we've learned in the last two months is that when corn prices moved into the mid $7 range, demand didn't just slow down — it nearly stopped.
Ethanol plants that were under construction came to a halt. Many that were operating shut down.
An even larger number of ethanol plants that were on the drawing board were taken off. The demand for corn to be used in ethanol plants has now been overestimated and over-exaggerated and yet the general public as a whole has not recognized this change has taken place.
Keep any commodity price too high for too long and someone will find a way to use less, produce more or use something else. This has once again happened in the corn market.
One can argue that the wet cold spring that delayed planting in the Midwest is going to be an instrumental factor of propelling corn prices higher.
Keep in mind that that is now a supply fundamental and thus the corn market has shifted from a demand-driven bull market to a supply-driven bull market. Supply-driven bull markets peak when the news is most obvious. How much more obvious can this one get?
My point is simple. Many mistakes were made in marketing over the last two years from selling early.
People in the coffee shop will say, “I sold early last year and learned my lesson, I'm never doing that again.” What they really learned was that they shouldn't have sold early last year.
This market is now going to need new bullish news that is not known by everyone in the coffee shop to keep the price going higher. Personally, I don't think that's going to happen.