The New Plateau
In the upper reaches of intellectuals at trade houses such as Goldman, MS, JPM, Louis Dreyfus, there has been a theory of a new price plateau in major row crops since the disastrous Easter freeze of 2007. That event propelled wheat to all-time highs, and set off an acreage battle that lasted 7 years. There was a shortage in one or more major row crops each year, and each year one crop stole from the others in an effort to protect against end of year stockouts.
One can easily see a new price floor in soy, corn and rice, but the wheat markets are more uneven. For soy, the new plateau floor of $7.80 was traded in Aug 07, Dec 08, and May 19. The median price since Apr 07 is $12.90, and soy has traded between $7.80 to $12.90 in 108 of the 164 month time period, or roughly 2/3.
For corn, a ballpark $3.00 floor has been established, with multiple lows. There are a dozen or so major lows at or near $3.00, making this line in the sand a solid visual for traders to step away from shorts. Almost as easy to see is a collection of major highs between $4.30 to $4.60. The median price since 2007 is $5.45. Corn has traded $3.00 to $4.50 in 113 weeks of the 164 period, or 69% of the time.
Rice is another market by which the new price plateau is plain. Lows at or near $9.25 hwdt were made in 2010, 2015, 2016, 2017, 2018, and 2019. A solid floor if there is such a thing. Rice has traded from this low to around $16 in 150 of the 168 month period, almost 90%. Rice also has a long trade period between $9.25 to $13.25 in 90 of the 168 months, or slightly above 50%.
Wheat is a little different, even though this market began the whirlwind and the 7 year scramble for acres worldwide. There are 4 major lows in Chicago at $4.20, and 2 at about $3.75, for an avg right at $4.05. A series of rising lows can be seen since 2016, at $3.60, $3.70, $3.86, and $4.16. For KC, there are 3 major lows near $4.50, then several from $3.62 to $3.90. Since 2015, the high/low has been near $5.90/$3.75. KC has traded this range 97 weeks of the 168, or 58%.
And lastly, our market in the new plateau. Cotton has defied making a nice, horizontal price plateau or support, but has established some boundaries on the charts. Cotton did follow the row crops higher from spring 07, bottoming in the high 40s and racing to that faux high of 110c, inspired by the closure of the floor in Mar 08. Even though cotton does not have a recognizable floor price, it does have a nice trend line of support, beginning at the multi decade low of 2820 in 01, then crossing 3670 in 08, then holding the line last spring at 4835. Cotton thus has a rising price for major lows that spans 2 decades. Rather than a horizontal price floor, cotton does have a pretty good horizontal price ceiling, going all the way back to the 73 high at 99c. Other highs have been 94c, 98c, 94c, 94c, 94c, 94c, 97c, and 96.5c in 2018. Cotton has managed major highs above the 95c/99c area 3x, 115c in 95, 110c in 08, and 227c in 11. Since Jan 2012, cotton has reached and failed at the 96.5c ceiling 3x.
The reason for going through years and decades of price history of cotton and its row crop cousins, is to draw attention to the observation that grain markets are reaching some clear areas of price resistance. Corn has a history of highs in the $4.40/$4.60 area, soy from $12.00/$12.55, Chi wheat at $6.15, KC wheat at $5.75, and rice at $13.25. Cotton has marginal resistance at 73c, but is not as significant as the others. The soy market has a balance sheet that could blow up resistance at +$12.00, but the others do not. Specs have reached record net longs in some of the row crops, and as we move into liquidation of the Dec contracts, traders must be aware of the long term price history.
