The Commodity Research Bureau (CRB) index — a commodity index of 22 different commodities — is the best lead indicator of farm prices and profitability that I've found. Think of the CRB as the Dow Jones of agriculture.
A review of the CRB index shows a major high in commodity prices during the inflationary 1980s followed by major declines into 1986 and 1992. Most recently, the CRB index shows a major high in 1997 at 236. As prices collapsed into early 1999, the index fell to 182. That was followed by a rebound, which lead to a subsequent secondary low and double bottom at 182 in October 2001.
The market action so far in 2002 has been very encouraging. The CRB chart shows a major chart breakout with trading above the downtrend line at 194. This suggests that the CRB has bottomed and that commodity, grain and oilseed prices have put in major lows. The next key signal that deflation is over and that commodity prices are in an uptrend will occur if and when the CRB cash index closes above 202.
For a long-term perspective, soybean farmers will want to review the weekly CBOT soybean chart. The soybean market shows a major high in May 1997 at $9.03, followed by the hard drop in soybean prices to the 29-year low in 1999 at $4.01. Since that major low, soybean prices have put in a series of higher highs and higher lows, even though record supplies have created very negative global fundamentals.
The short-term soybean chart analysis shows a major high on July 17, 2001, at $5.38 followed by the hard slide into the harvest low in mid-October at $4.20. This was followed by a six-week rally with prices topping out the day after Thanksgiving at $4.54.
The next down move was six weeks with the low occurring on the first trading day of 2002 at $4.15. Following the low made in early January, the nearby futures rallied above the downtrend line and the 50-day moving average by mid-January. The long-term trend in commodities and the soybean market appears to suggest higher prices. Look for good support on any break to $4.30 or less. Two closes above $4.54 will suggest an up move to $4.70-4.84.
The next critical change of trend time period when a cyclical high or low is due is the middle of February.
For many producers in 2001, the challenge they faced was trying to lock in the largest LDPs possible, and get net selling prices for their soybean crops that created profit. In 2002, the challenge may be getting trend line yields or better.
Alan Kluis is executive vice president of NorthStar Commodity Investment Co. If you have marketing questions or want more information, write: NorthStar, 1000 Piper Jaffray Plaza, 444 Cedar Ave., St. Paul, MN 55101; call: 800-345-7692 or e-mail: aginvestor@agmotion.com.