WILL CORN AND SUGAR GET SWEET WILL COFFEE REMAIN BITTER?
*April 28, 2020*
The Corn market continues the steady march lower. A growing number of market watchers are suggesting that Corn will not stop until it hits somewhere below the three dollar level. This move started in mid-October 2019 slowly grinding lower and then accelerating lower in early March 2020. During this time July Corn has lost over a dollar a bushel.
The fundamentals are no mystery, large crop with a growing carry over as Covid-19 has brutalized the energy/ethanol demand.
My Model tells us that Corn is in a definite down trend needing a close this Friday at or above $3.83 ½ to reverse the trend. The Positive Indicator is firmly mired within the first Standard Deviation of the long term average. The Negative Indicator is above the Second Standard Deviation of the long term average. The Negative Indicator continues to move slowly toward *Positive Equivalency but not there yet, ergo I am patiently waiting. I might wait too long which given the New Normal is okay with me.
Battered and bruised by the Coffee market I continue to watch this market very closely. Last week the July Coffee market broke $10.80 to turn the model long term bearish. I knew it was possible but did not think very probable…….wrong. So what do we know about the Coffee market. We know the main stories impacting Coffee are Covid-19 driven demand destruction along with new crop Coffee harvest approaching.
The Model tells us Coffee trend did reverse to bearish. It tells us that Coffee needs a close on Friday at or above $147.65 to reverse the trend to bullish. I am pretty confident that will not happen. The Model also tells us that the recent break in Coffee was so quick and harsh Coffee is now at the entry way of *Positive Equivalency. The Model also tells us that the Negative Indicator is at the third Standard Deviation of the long term average. Under the old normal I would have recommended a long counter trend position, but this is the new normal. I think I will wait and see if it violates the fourth Standard Deviation before getting brave.
The Sugar suffers from the same fundamental situation as corn. Demand destruction of the energy/ethanol markets has caused the Brazilian Sugar mills to switch from ethanol production to Sugar production adding the world supply of Sugar.
The Model tells us that Sugar is in a definite down trend needing a Friday close at or above $14.92 to turn bullish. As I write this article July Sugar is trading at $9.46, I am once again pretty confident we will not be turning the market bullish this Friday. The Model also tells us that the Negative Indicator is above the fourth Standard deviation of the long term average and has achieved in *Positive Equivalency.
What to do? Understanding the risk involved I am attempting to buy July Sugar on setbacks.
*As the Standard Deviations expand above the Third Standard Deviation they can become overstretched to a point where they signal Negative Equivalency or Positive Equivalency, a sign of being significantly imbalanced. This is normally a sign to consider a counter trend trade.
If you have a commodity you would like me to write about feel free to drop me a quick e-mail atlee@efggrp.com, I will do my best to accommodate.
My name is Lee Gaus and if you would like to see more of our thoughts go to our website ifgfutures.com. There you will also find articles written by my partners Tom Fritz, Steve Erdman. If you have any questions you can reach me at 1-877-304-1369, 312-384-1166, or email me atlleegaus@efggrp.com.
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