Grain Market Bulls Snort Into the New Year

Having been immersed in the commodities markets for nearly a quarter century (and over half of my life!), I have been very fortunate to meet and become associated with some very talented folks with as much or more experience in the arena than I have.

The editors at Pro Farmer, based in Cedar Falls, Iowa, certainly fall into the above category. I sit in on an agricultural markets meeting once a week, in which we all discuss markets and market trends. I come away from that meeting each week better enlightened on the current (and future) agricultural markets outlook.

Significantly, at this week's meeting, we examined many charts and examined not only the technical outlook heading into the new year but also the fundamental situations. After discussing and dissecting the markets at the meeting, I think we all walked out in agreement that the present and near-future situation in the grain markets is bullish -- even with prices at lofty levels -- and possibly much more bullish.

Following are some key observations we made this week:

• Technically, both from a shorter-term and longer-term perspective, the grain futures markets are in a bullish posture. They made strong bull runs this fall but have just recently set back a bit on some end-of-the-year profit-taking pressure and book-squaring.
• If one compresses the daily charts in the grain futures (showing as many daily-chart bars as possible on a computer screen), it becomes clear that most markets are just in a pause or corrective mode from solid price uptrends. In fact, bullish pennants, flags or wedge chart patterns show up on the compressed daily charts in most of the grain futures markets.
• If history proves correct, then the pauses in uptrends seen in the grain futures markets will soon be met with higher price volatility or more trending price moves. Given that the trends were up before the pauses, technical odds do favor the next significant trending move in the grains being higher.
• Fundamentally, the situations in the grain futures also generally tilt to the bullish side, especially in corn with the spike in demand for ethanol as an alternative energy source. The world supply-and-demand situation for wheat is still very bullish, due to shorter crops in major producing regions. The soybean market is probably the least bullish, fundamentally, but Chinese demand for U.S. beans has been showing up recently. And they will be right there if corn and wheat futures continue their bull market runs.
• Commodity markets, in general, are in a fully bullish phase. The Continuous Commodity Index is a basket of around 20 major raw commodities futures prices rolled into one composite price index. Just this month, the index pushed to a fresh 25-plus-year high and is in a very strong uptrend from the 2001 lows.

Investing in grain futures markets is a very risky proposition and not suited for most individual investors. However, prudent market watchers can benefit from the general bullish posture of the raw commodities markets by targeting stocks or mutual funds that are more closely associated with raw commodities.

Futures prices are presently near a 10-year high. The weekly continuation chart for nearby corn futures shows a steep uptrend still in place, and the trend is strong. See at the bottom of the chart that the Directional Movement Index (DMI) has a green ADX line reading of 46.74. Any ADX line reading above 30.00 suggests that a strong trend is occurring in the market.

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Jim Wyckoff is a senior market analyst for TradingEducation.com a free educational Web site. In addition, Wyckoff writes a blog offering current market commentaries every morning on TraderBlog.com. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Wyckoff appreciates your feedback; click here to send him an email.