Grains on a roll

Last fall, when we started pointing out some extremes in the grains and commodities in general, we noted that if they were able to continue to rise in spite of the readings seen at the time, then it would suggest a change in the environment that they'd been mired in for almost a decade.

It's safe to say they've done that, as many contracts are hitting multi-year highs in spite of extremes in sentiment that stopped other rallies almost immediately in recent years. As a result, the Market Sentiment Overview is showing that corn and soybeans are currently the only 2 markets still showing a true extreme in optimism.

The only times corn saw this kind of optimism were during the middle-to-end of its momentum runs. Because it triggered during the middle of a couple of them, the medium-term returns were good for traders, but not necessarily investors. When the Optix was above 85, the Backtest Engine shows that corn rallied over the next 2 months 81% of the time, but a year later only 18% of the days showed a positive return.

For soybeans, the medium-term momentum wasn't as powerful, and the longer-term returns were even more consistently weak.