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Talking Corn

Folks, Howard Marella, president of Index Futures Group, called in to the show this morning to talk about the move that corn has been making. Like a lot of traders, farmers and hedgers, I’ve had my eye on this story for the last week or so, so I was thrilled to be able to have a commodities expert like Howard give me some perspective.

The December corn contract broke a key 720 resistance level—it actually settled at 727.4 yesterday. It also shot past its most recent highs, which were set back in June. According to Howard, this is very bullish, and could be setting the stage for a leg up to the 800 level.

Weather and crop reports are indicating lower supplies, but there’s something else that’s important to understand here. Corn is excellent way to track inflation—that is to say, it offers a pretty accurate gauge of the higher price levels that people will accept. The rise in price doesn’t have the euphoria or greed associated with that gold or oil might—people aren’t scrambling to get into the market. That tells us that the level of inflation reflected in the price of corn is acceptable.

So, what do we do with this? Well, keep in mind that we’re having this conversation when corn is around 720. If it keeps stair-stepping up the way it has been, eventually euphoria and greed will set in. For argument’s sake, let’s say that happens around the 900 level. As  margins go up and daily limits expand, we’ll be sitting on a nice lead—should be just about the perfect time to put up the For Sale sign.

Before I go I want to touch on equities, since we’ve been talking about them a lot lately. We saw a nice little rally in the stock market just after opening this morning. Remember back before the downgrade when the Euro and U.S. equities were moving together on a relative percentage basis? That relationship seems to have returned.

As I write this, the S&P 500 and the NASDAQ are both up around 1%. If this little rally continues after the European markets close today—which I would love to see happen—it will be an indicator that some of that cash that’s on the sidelines is working its way back in the market. Remember: that cash is parked in the 10-year, which is all risk and no reward at 2.5%

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