January 9, 2024

 Cattle, Cocoa & Soy…

The truth is, I’d bet that the Cattle market is not even halfway to where it’s going…

As I have often stated, the meat markets almost routinely make some of the most insane, not-stop, monster sized moves that you will ever see in the futures arena…particularly when they are going down…which I believe is directly connected to the fact that a market ready steer CANNOT be stored away, as, for example, is the case in the grain markets, in hopes of later getting a better price. When that LIVE animal has been fed, and fattened up for slaughter, there might be a little leeway as to when it goes to market, but generally speaking, it HAS to go to the meat packer when it reaches an acceptable weight. Otherwise, its owner is going to continue footing the DAILY COST of feed, vet care, and feedlot space until they do decide to market it…while also running the risk of health issues, or quality grade changes…or…even a LOWER PRICE.

The point is, when they’re ready to go, they pretty much HAVE to be sold to the packing companies…no matter what the price might then be….And concurrent to that, what DOES occur in the cattle business is that there are definitely times when high cattle prices, accompanied by the seemingly unanimous bullish press from analysts, leads EVERYBODY in the cattle business to pay almost any price to acquire feeder calves (600-800 pound steers that go into a feedlot to be fattened out for 3-4 months)…and they do so mistakenly thinking that prices can only stay up…or even get better. And this, I firmly believe, is what we saw last fall when Feeder Cattle prices went through the roof…because EVERYBODY wanted in and didn’t care what they had to pay.

I THINK THE CATTLE MARKETS HAVE A LONG, LONG WAY TO FALL FROM HERE AND AM SHORTING THEM AGAIN. Although it may seem like cattle have come down a lot…and I am sure has the majority of cattlemen and traders thinking, “We must be near the lows,” but in truth, per the two charts following, VERY LITTLE HAS HAPPENED SO FAR ON THE DOWN SIDE…AND THINKING IN TERMS OF DROPPING ANOTHER 30-50 CENTS IS NOT OUT OF THE QUESTION.

Both of these cash charts are STILL in the Stratosphere…

IF YOU ARE IN THE CATTLE BUSINESS…

If you are a long time cattleman, you MUST remember any number of occasions when the bearish outcome I’m describing here has been a reality…Where prices get hit so hard, and so much money is being lost, that you actually do find calves penned up next to backroads with signs saying, “Free. Take these calves.” FOR REAL…That being said, and I know that, with prices already having fallen by what seems like so much, many of you are thinking, “All I can do now is hang on,”…and hope prices will stay up…but considering myself as an objective voice NOT in the cattle business, I will say that it is STILL worth it to look at using puts to hedge whatever animals you’ll be marketing in the months ahead. I mean, really, I might be dead wrong but I DO think Fat and Feeder Prices could be 30-40-50 cents lower by Spring…and if I am even close to right, spending some bucks on puts to protect against that, I believe, is a far better marketing strategy than just waiting…and hoping.

Whether you are a hedger or speculator, here are the put options I recommend owning, immediately, at current levels…

Cocoa has started rolling over…

Cocoa appears to have started rolling over…having traded down 250 points in the past 3 days…and if history is any guide at all, if it IS cracking, it won’t just lay around here…

The Soybean trade is working…and JUST getting started I think…

It appears that my New Year's collapse scenario IS beginning to unfold...where farmers who had been massively holding off selling in hopes of higher prices and a new tax year...are now beginning to worry as Soybeans have started 2024 by making NEW SIX MONTH LOWS...And if what happens next is anything like the 100’s of crop market “surprise” sell offs I’ve seen these past 43 years, SOYBEANS DO JUST GO STRAIGHT DOWN $2-$3 AS FARMERS WATCH MORE AND MORE MONEY EVAPORATE IN THE BIN…AND COLLECTIVE PANIC SELLING SETS IN ACROSS THE MIDWEST.

I DO THINK THE TARGET IS UNDER THE MAGIC $10.00 MARK.

I STRONGLY URGE BUYING PUTS HERE.

As always, I firmly believe the best way to go here is to buy in units of one put each for all four markets…About $5500…And then forget them for, to begin with, the next month. Do the math yourself as to the possible outcomes if just one of the four works, or all of them, or none (you lose everything).

Good things are happening on a number of fronts here…including Bonds, Stocks, and the Yen…I simply urge you to get on something.

Thanks,

Bill

770-425-7241

866-578-1001

All option prices in this newsletter include all fees and commissions. All charts, unless otherwise noted, are by Aspen Graphics and CRB.

The author of this piece currently trades for his own account and has a financial interest in the following derivative products mentioned within: all of them