All prices are set by how investors feel. Buying and selling shares or futures is an inherently inexact thing. Whether you are using supply/demand data or just a gut feeling, buying shares is a bet on what will happen in the future.
That’s why sentiment indicators are useful … but only in the extremes. When sentiment gets too high, it indicates a bad time to buy. When sentiment gets too low, it tells us that it’s a good time to buy.
For example, back in late 2008 to early 2009, sentiment toward stocks was terrible. No one wanted to buy stocks. Everyone was terrified to the extreme.
But if you bought the S&P 500 back then, when it was under 800 points, you would be sitting on 300% gains today.
That’s the way sentiment indicators work. They let us know when the greed or fear levels are too high.
Right now, the fear level in corn is the highest it’s been in four years. That means it’s probably a good time to speculate on corn.
Corn: A Hated Crop
The market hates corn right now.
According to the investment sentiment website sentimenTrader.com, corn is at its lowest point since November 2013. When sentiment got this low back then, the price of corn soared 22% in six months.
You can see the rally, and the present price, in the chart below:
While the corn price isn’t at a record low, it’s the sentiment extreme that lets us know it could be time to buy.
The problem is a record harvest. U.S. farmers got a surprise: The harvest looks like it will come in at a record 175.4 bushels per acre.
That is more than three bushels per acre higher than the October 2017 estimate. That’s 300 million extra bushels produced.
There will be more exports too — roughly 150 million bushels more consumed. However, the “carryover” (bushels that will stay in storage) will hit 150 million bushels. That’s a huge amount of grain in storage.
A Good Place for Speculation