Analyst Richard Brock notes that just because a commodity is cheap compared to where it was two months ago, that does not mean it should be bought.
By Richard Brock Change is the only certainty in commodity marketing/purchasing. Some people adjust to change better than others. By nature, many people are more suited to the bullish side of markets while some are more inclined to be bearish. Through time has come this truth: A bull sometimes makes money; a bear sometimes makes money; but a pig gets slaughtered. The grain markets had a two-year major bull market from mid-2020 until May of this year. The stock market also had a two-year bull market and now has switched gears. Bear markets have a totally different personality than bull markets. If people are looking for the news for a bear market to go down, they can be waiting for a long time. Bear markets fall by their own weight. Bull markets need bullish news every day to keep going up.
Follow the facts not your emotions The impact of human nature on making commodity pricing decisions is truly amazing. It’s very easy for even very intelligent people to fall into the trap of believing what they want to believe. The last two to three months will likely be one of the best examples of people “believing what they want to believe” than we will likely ever see. Give a good public speaker a platform and a bullish argument, true or false, and he/she can convince many people that the market is going higher because that is what they want to believe. Amazingly the speaker may or may not even have any credentials. But that often doesn’t make any difference. If it is a story that the listener wants to believe and hear, then the bullish argument becomes the driving force over making marketing/purchasing decisions. Now a weather market With all of that said, the corn and soybean market is in a full fledged weather market. There will be periods of sharp rallies caused by weather scares, drought predictions, early frost predictions, etc. But the trend of corn and soybean prices turned down in May. This year’s market has many similarities to the markets that we saw in 2008 and in 2012/13. Each of these substantial bull markets was followed by a substantial downturn. In a bull market, prices normally go higher than anyone expects. Bear markets are no different, this one will likely go lower than most people expect. The trend has changed in many markets. In almost all of the following markets the trend has shifted from up to down. Corn. Wheat. Soybeans. Copper. Lumber. Steel. All signs of a recession ahead. All signs that purchasing programs should be focused on going slowly. Just because a commodity is cheap compared to where it was two months ago does not mean it should be bought.
Richard Brock is owner and president of Brock Associates, Milwaukee, Wis.
