Amidst all of the talk of the death of volatility, the inexplicable bond rally (rates lower), and broken record of new all time highs in US stock markets – we’ll excuse you if you didn’t notice some rather bizarre behavior in farmed commodity markets in May. The poster child was Wheat, which had a trend reversal on May 6th, and didn’t look back, losing on 14 of the next 16 days to post a negative -13.0% return in May.

(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: Finviz

But it wasn’t just Wheat  – similar patterns were seen in Corn, Soybean Oil, Rice, Coffee, and Cotton:

(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: Finviz

What’s going on? Did these grain markets follow the “Sell in May” saying?  Was it the S&P hitting new all time highs? Was it an easing of tensions in the Ukraine (in Wheat’s case)? Was it the price distortion of many Ag commodities like M6 Capital suggested in their newsletter? Maybe. We’re not exactly sure. But one thing’s for certain, the sharp run higher seen earlier this year has reversed course, with Ag heavy commodity indices such as the CRB Index showing the recent weakness.

(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: Stock Charts

A longer perspective can also be of some help here, where looking back 5 years we can see the 2014 moves higher in Coffee and Wheat were reversals of years long down trends. Perhaps these were just short coverings and dead cat bounces instead of the start of a new uptrend?  Perhaps this is a normal consolidation period before moving higher again.  Only time will tell at this point, but one thing’s for certain – the months long pattern of higher daily and weekly highs and lows, which broke the years long pattern of lower highs and lower lows, is now itself being broken.

(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: Finviz