Corn – As Oversold as It Gets

Below I plot the 7-yr RoC in corn.  At its worst point in Aug-18 it printed -54%, a touch above the two worst readings in history including Aug-87 and Jun-03, both at -56%.

After the bombed out 1987 and 2003 readings of -56%, corn went on to register 100%+ and 60% rallies, respectively.  So far, it’s up < 6% after its Aug-18 7-yr RoC reading of -54%.

Corn is also breaking above falling trend-line resistance that’s been in place since 2012 and in general, has a favorable-looking price structure set-up that resembles previous periods that have produced sizable cyclical rallies.

That corn, or other commodities for that matter, might be due either a sizable absolute price rally, or just a period of relative out-performance vs. falling stock prices, should not be surprising.  I have repeatedly detailed the case for either or both on this website over the past year, highlighting the historically large and fast collapse in commodity prices vs. equities over the trailing seven-eight year period, detailed as recently as this post, but first introduced in Jun-18.

While I understand commodity rallies, including some of the previous versions in corn I’ve highlighted in this post, are exceedingly hard to nail down and more often than not, ephemeral and fleeting, we must also accept the reality of the Brett Easton Ellis return environment we’re living in whereby nearly every asset class, most certainly stocks, are getting blasted left and right.  No quarter, no refuge.  Thus, let not beggars be choosers in this environment; if we can find an asymmetry that portends even the tightest window of limited downside, but sizable (in percentage terms) upside, we must make at least some attempt to exploit it.

Corn futures are really the only proper vehicle to express this thematic (don’t hold your breath that commodity-related stocks will benefit if ag prices rise), but if one must, they can plug their noses and purchase the highly imperfect CORN ETN in an attempt to play a rally in this particular grain product.