January 23, 2021
Don’t just WATCH this happen…
Several days ago I made the point that with the ONGOING and
improving distribution of the Covid vaccine…and massive Congressional
stimuli…and simply the arrival of spring and summer, …and most importantly,
people just getting out and living again as we progress thru 2021…it
is my very firm conviction that consumption and economic activity will be going
through the roof. After all, the USA and World ARE coming out of
what has been the single largest, OUT OF NOWHERE, economic contraction that we
have ever experienced…and the pandemic IS now falling away as a consumption and
economic activity deterrent. Quite the opposite, worldwide, I don’t think
“releasing pent up demand” even comes close to describing what the world will be
experiencing as we go forward from here…And very specifically,
I THINK IT WILL HAVE A MASSIVE POSITIVE IMPACT
ON MEAT CONSUMPTION…BOTH DOMESTICALLY AND ON THE EXPORT SIDE…WHETHER IT BE DUE
TO THE PUBLIC GATHERING FOR COOKOUTS, TAILGATES, ETC., OR RESTAURANTS REOPENING,
OR THE RESUMPTION OF INTERNATIONAL TRADE, I CAN ONLY IMAGINE THAT MEAT DEMAND,
COMPARED TO THE PAST YEAR (AND EVEN YEARS PAST), WILL BE POSITIVELY
FOR THE NEXT SIX MONTHS…AND IN A NUTSHELL, DEMAND WILL ABSOLUTLEY
AND I CAN THEREFORE ONLY ENVISION
SHARPLY HIGHER CATTLE AND HOG PRICES
When I put my opinion together with my observation that just about every meat “analyst” I see out there remains resolutely bearish both of these markets, including the fact that Friday’s monthly USDA Cattle on Feed Report has been judged as “bearish,” it just reinforces my opinion…especially when I note that Friday’s closes in Cattle and Hogs represent NEW HIGH CLOSES FOR THE PAST YEAR…which IS the same scenario we witnessed for much of the past year in Corn, Wheat, Cotton and Soybeans, in which these markets were steadily making new highs while virtually every “expert” analyst I follow was saying “Sell!” (a combination of which…new highs and analysts remaining forever bearish…I have LONG regarded as absolutely bullish).
And then there is what I see on the charts following…I have been around the markets for a long time (4 decades) and it definitely does NOT mean I will be right, but the charts below are the epitome of what I years ago came to regard as THE highest probability trade there is…that is, a LONG sideways move, with a repeated top at more or less the same level, that puts eventually puts together an upward slant and then finally breaks through on the upside. Again, though it does NOT mean it will be the case here (in other words I might be dead, dead wrong), in my experience the next most likely development tends to be a LARGE and relatively FAST move to the upside…which is precisely what I am expecting here.
In a sense, I view this as the letter perfect storm for a bull move…1. What I believe is sound fundamental logic. 2. Analysts seemingly unanimously bearish. 3. A fantastic chart set up.
Again, anything can happen but I think ALL THREE OF THESE MARKETS, IN UNISON, ARE POINTING HIGHER…a LOT higher.
For the record and indicative of what partially shapes my expectations, here’s a quick rundown of markets that HAVE been making bullish moves recently, and what the size of those moves have been during the past few months…And as stated in my last newsletter, I believe the Meats, having been sideways for quite some time, are about to become THE bullish headline grabbers of the commodity markets…and fully expect to see something of the same from Cattle and Hogs as to speed and percentage gains.
Corn - 29% in 4 weeks
Soybeans - 36% in 10 weeks
Wheat - 21% in 6 weeks
Cotton - 17% in 8 weeks
Lumber - 100% in 10 weeks (doubled)
Crude Oil - 50% in 11 weeks
Copper - 20% in 8 weeks
So, for perspective…
A 20% in Feeders would be about 30 cents.
A 20% move in Live Cattle would be about 24 cents.
A 20% move in Lean Hogs would be about 15 cents.
AT CURRENT LEVELS, I RECOMMEND BUYING THE FOLLOWING CALL OPTIONS…
As a final note, I would add that this past week’s action saw Soybeans, Soybean Meal, Corn and Wheat just get clobbered, with, significantly, Beans down over a $1.00 OR 7%, Soybean Meal down $41 or 9%, and Corn down 31 cents or 6%...which IS part of the reason why Feeders closed up 8.30 cents for the week (+4.90 on Friday), Live Cattle up 4.32, and Hogs up 3.50, as…BELIEVE ME…NOBODY in the row crop world was even remotely expecting the grain market sell off, and neither was ANYONE in the meat complex…And quite simply, when feed prices (Soybean Meal and Corn) drop sharply, and again, SURPRISINGLY (though not to me), IT TYPICALLY IS VERY BULLISH FOR FEEDERS…and MY GUESS IS THAT THESE NEW ALMOST 1 YEAR HIGHS ARE THE BEGINNING OF A CLASSIC COMMODITY MARKET LIFT OFF.
As usual, my recommendation is to buy these markets in units of 1 call in each, in which case, the total cost above would be $4174. I am reluctant to suggest it, but if you want to go with just one of the Cattle contracts, I would buy the Feeders (as they tend to move bigger), in which case each “unit” (1 Feeder, 1 Hog) would be $2911.
Truth is, if I didn’t need to be here in front of this screen, what I would like to do is own as much of these three markets as I could stand, and then take off flyfishing the backwoods of Montana or something…and not even see what was happening for the next six weeks.
Call me if you want to get on any of this…or just catch up…
And again, if you do think all of this makes sense, I urge you NOT just sit there and watch. Maybe this works, maybe it doesn’t…But as they say, “You can’t win if you don’t play.” And no, I don’t think this is just “playing.”
Thanks for reading,
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: Feeder Cattle, Live Cattle, Lean Hogs