Prepared by

Richard A. Brock & Associates, Inc.

Over the past two weeks we've switched very rapidly from the bear to the bull side in the grains and in all likelihood sent a few subscribers into shock. While it is never our intent to make such quick reversals in a market, it is also important to recognize that in markets that can change trends as quickly as the ones we are currently witnessing, it is also important to change one's attitude and market position just as quickly. As Mark Twain once said, “If you have to swallow a frog, don't look at it very long.”

The key questions right now on everyone's mind: Will this trend continue? Is it the beginning of another major move up? Or, will it fizzle soon? To answer that, let's not only look at the current fundamentals and technical patterns, let's take a look back at history and see what has happened in the past when corn and soybeans have moved above the July/September highs during the month of October.

There's no question the technical trend in corn has turned up. It is also rare that corn futures make new highs for the move in the middle of harvest. No doubt you've heard many people say in the last week that for markets to make new highs during the glut of harvest is an extremely bullish sign and a bull market is likely to follow. Maybe so, but history does not prove that to be the case. The table shows a more descriptive tale of what has happened since 1980.

			Subsequent
Year			Price Move		Date Of Peak
1980			$3.75-4.18		Nov. 28, 1980
1987			$2.05-3.55		July 5, 1988
1993			$2.70-3.15		Jan. 13, 1994
1996			$3.20-5.54		July 12, 1996

Specifically, July corn futures have penetrated the July/September highs only four times during the month of October since 1980. It happened in 1980, 1987, 1993 and 1995.

In 1980, conditions were not totally dissimilar to what they are today. The market had already been in a fairly significant bull move for several months, which is one of the key differences. Prices were also quite a bit higher than they are today, Nevertheless, once the market went to new highs in October, the bull market was relatively short lived, with a peak occurring on November 28 at a price level 43 cents above where the bull market started in early October.

The bull market of 1987 was entirely different. Even though new highs were made during October, the market essentially went sideways until mid-May. The real bull market occurred during the month of June with prices peaking on July 5 at $3.55. There's no fundamental or technical similarity between 1987 and 1997.

The year to look at is 1993. The technical pattern is very similar to what we're going through right now. Prices jumped into new highs at $2.70 and quickly reached to a peak of $3.15 on January 13. From that point on, a major bear market followed.

In 1995, the biggest bull market in corn's history, the pattern and the fundamentals were all very different than they are today. Prices peaked in July at $5.54.

First of all, let's identify whether this is a supply or demand driven bull market. In many cases, this being another one of them. it is not possible to totally separate the two. Feed usage is increasing, food usage is increasing and exports should also increase over the coming year. While those are all very positive signs, the short term price movement will be propelled more dominantly by supply issues than by demand. Those supply issues, however, we also believe are going to be positive.

Reasons for being bullish near term include the following:

1. Going into this year's harvest, there was an abundance of farm storage. And, if a bin is sitting empty, farmers want to use them.

2. The majority of farmers have had an extremely good year financially. They don't want any more income in 1997 and thus given any opportunity to put off the pricing decisions, they will put them off until January of 1998.

3. Bullish attitudes are also encouraging farmers to hold off on making any sales.

4. Processors need corn now–not just in January. Because of the above mentioned reasons, they will have to bid up to get corn moved off the farm.

The Bottom Line: Processors are going to have to start bidding this market up now in order to get corn moved off the farm. This should result in a short-term upward price spike that could last into mid-or late November.

The flag formations the market broke out of this past week give some fairly obvious targets in the December corn of $3.04 and in the March contract of $3.14. While that certainly doesn't mean that the market will go there and stop, it does mean one should be looking for technical reasons to sell this market if and when those price objectives are met. Most importantly, we would anticipate that this bull market is going to be over prior to January.

Soybeans are an all-together different story. To begin with, July soybeans have penetrated the July/September highs only three times since 1980. What is interesting, however, is that in all three markets a significant bull market occurred. In 1980 the market rallied approximately $1.00 between early October and November 28. In 1987, prices rallied from $5.75 to $10.99, peaking in June. In 1995, the October penetration occurred at $7.00, then the market finally peaked in July at $8.50.

So what does this tell us? To begin with, there is no correlation at all in soybeans relative to corn. History shows that the upward movement in beans over the next several weeks might be much more significant than some people now realize. Soybeans are now at low price levels, consequently the upward move could be swift and violent.

Over the past few weeks we have also pointed out the significance of the fact that commercial firms are relatively large net longs in the soybean complex. It is unusual that commercial firms would be long beans at this time of year. We view this as a very bullish sign, which will likely propel soybeans to higher highs than most people now expect.

Our recommendations have probably caught a lot of subscribers off guard the past week or so. Not only have we lifted all corn hedges, but in the soybean complex we actually re-purchased half of our sales. Again, when the technical signals are given in a market it is important to act quickly. Sit tight at 40% sold in corn.

In the soybeans, selective hedgers are 60% sold, but now re-own half of that amount in January futures from approximately $6.55. Cash marketers are at 50% sold. Await technical signals before making any other sales or taking profits on long January futures.

October 10, 1997 Richard A. Brock & Associates, Inc.

2050 W. Good Hope Road, Milwaukee, Wisconsin

Consensus National Futures and Financial On Line Index

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