Don’t Laugh, it’s Possible

I can hear the giggles and scoffing starting already. It always does when you bring up the idea of commodity prices rising. Every discussion for the past umpteen years that we have had regarding inflation being something investors need to watch out for has been the little boy crying wolf. Will this post be just one more added to the list of failed breakouts in the commodity space? Could be, but this post is not about all commodities, just corn.

Taking a look at the long-term (15 years) chart of corn below you can see it has a tendency to base and then rise strongly. As we have learned, it’s not just corn that does this, it is every investment. Looking to the far, left-hand side of the chart you can see the price of corn went sideways for more than 2-years before it broke out and climbed more than 310% before peaking in the middle of 2008. Once again in late 2008, corn started to consolidate sideways, lasting for 2-years before finally breaking out and climbing more than 175%, peaking in the middle of 2012. Fast forward to current and we see a huge, 5+ year base that corn broke out from. Notice how in all cases, buying volume (lower pane) spiked at the breakout levels which is the confirmation of the breakout and the potential for healthy gains.

bay area fee only napfa cfp investment advisor - corn - 6-19-19.png

While the first upside target based upon the rectangle pattern breakout is up at T1, I would assume the next run in corn could be as large and long as those seen in the past. Because the current base is more than 2x the prior two, a 1.5-year climb with gains exceeding 100% are conceivable.