True or False? The major Grain markets are positively correlated, rising and falling in step like synchronized swimmers.
Answer: That depends. According to the mainstream experts, the correct reply is True. The way they see it, corn, wheat, and soybeans are the Three Huskateers, with prices in each market abiding by the original motto: “All for one and one for all.”
By extension, if one market in the Grain trio is affected by a certain fundamental, all of them will be. Case in point, these recent news items that tie the “Huskateers” performance to changes in the U.S. dollar and Crude oil:
· “Corn, soybeans, and wheat fall as the dollar headed for a second straight monthly gain. The big deal in the markets is the strength in the dollar, plain and simple.” (August 26 Bloomberg)
· “Corn, soybeans, [wheat] gain as a drop in the dollar boosted the appeal of U.S. supplies for overseas importers and rising energy costs increased demand prospects for biofuel.” (August 27 Bloomberg)
Here’s the problem: The U.S. dollar hit a lifetime low on March 17. Prices trended sideways until breaking out to the upside in early August. During that time, the winning streak in corn and soybeans continued unabated, with prices in the former peaking on June 27 and the latter, on July 3. Wheat, for that matter, reversed its course on February 27 -- before the dollar’s plunge had ended.
As for the crude oil connection: Oil set its record high on July 11 -- AFTER all three grains had peaked.
Fundamentals aside -- even if the Grain Markets existed in a vacuum immune to ALL external factors, there’s still no guarantee that prices would trend as one.
In the August 2008 Monthly Futures Junctures “Featured Market” segment, Elliott Wave International’s chief commodity analyst Jeffrey Kennedy makes an airtight case against the claim that grains of a feather flock together. The key piece of evidence in Jeffrey’s arsenal is the powerful chart below:
Notice: Soybeans and corn peaked on June and July 1989, while wheat held off on forming its top until six months later in January 1989. Also, wheat peaked in March 1996. Four months later corn topped. Yet soybeans didn’t register its extreme until 14 months after wheat's high.
In Jeffrey’s own words: “As we just observed, the grains don’t always do what common wisdom suggests they do.” As for what the patterns in Elliott Wave analysis says they should do, Jeffrey presents FOUR compelling close-ups of the Big Three Grains that show each one’s separate course ahead.
(Editors Note: In the latest August 28 Daily Futures Junctures, Jeffrey presents three labeled price charts and in-depth analysis revealing where Feeder Cattle prices could be in the coming days.)