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January 23, 2022

 

 I continue to believe:

The odds are extremely high that all four major row crops

have seen their highs for years to come…

And while in recent months they have repeatedly looked like their tops had been completed…and were therefore ready to basically collapse as ALL of their past bull markets have REPEATEDLY done for as far back as futures have traded…the speculative inflationary (buying) fervor that appears to be present in virtually every piece of paper we trade has managed to keep them all “up.”

But…In this environment in which EVERYBODY IS LONG EVERYTHING…with interest rates now definitively rising with the specific intent of combatting inflation…I think the “air” is about to come out of any number of markets…and that 2022 will see some spectacularly nasty bear markets…which, in my opinion, WILL include Corn, Cotton, Wheat and Soybeans. For the purposes of focus, however, I IMMEDIATELY WANT TO OWN PUTS IN CORN AND SOYBEANS AS I SEE BOTH  MARKETS AS MONSTER SHORTS AND INTEND TO STAY WITH THEM UNTIL THEY PAY, and I obviously think the time to be getting short is RIGHT NOW, or I wouldn’t continue making the recommendation…

In my January 10th newsletter, http://www.crokerrhyne.com/newsletters/01-10-22.htm , I showed you every major top in Soybeans…18 in all…for the past 50 years…and noted that out-of-nowhere, 25-30% two month declines, are basically a NORM in that market…In the same vein, with this piece, I want to show you that Corn essentially does the same thing. This may be overkill, but what follows are 44 chart snapshots of pretty much every bear market COLLAPSE in Corn for the same 50 years, with my intent being to demonstrate why I am so adamant about being short this market…RIGHT HERE AND RIGHT NOW…the evidence being that history suggests that large, fast, fairly straight down declines ROUTINELY take place in Corn…precisely as the also do in Soybeans…and for that matter, in Cotton as well…And as the majority of them start with VERY BIG, VERY FAST INITIAL DECLINES, it is highly important to be there BEFORE they start doing so, which is also why I keep stating: When it’s about happen…and when it is in the process of happening…YOU ARE NOT GOING TO BE READING, ANYWHERE, “Experts/Analysts/Talking Heads now advise being short this market.” It is never, EVER, that way.

So here they are, 44 steep Corn market selloffs in the past 50 years…

Do observe that QUITE often, after going up, it turns around, literally, from one day to the next…and then goes STRAIGHT DOWN.

And do note how QUICKLY it can break from the highs  and suddenly be 20-30 cents lower…in a matter of days really…meaning, you DO need there before it starts. Otherwise, aside from having seen option prices jump big in price, you’ll also be sitting there wondering, “How do I get on now?”

And obviously…See the numbers…How big the percentage declines are…and how few weeks or months it takes for the move to occur.

And finally, do understand that a 25% break in today’s Corn market would be about $1.50 or $7500 per futures contract…And that 25% in Soybeans would be about $3.50 or $17,500 per futures contract

 

  

 

So, one more time, ask yourself if you think ANY of these sell offs were predicted or if ANY of them were preceded by some “signal” or event that said, “Get Short Now. The market is immediately about to drop 25% in the next month or two,” even though that IS obviously the way it happens, year after year after year.

I might be dead, dead wrong but My mentality is that these bull markets have been hyped so much and for so long that when they do go down it WILL be AT LEAST a 25% decline…As a function of all the non-stop bullish rhetoric, which IS the source of every farmer’s opinion, I believe that there is a nation of farmers still sitting on product that DOES have to be sold, and that when prices do start down, there is going to be an avalanche of selling…resulting in, MINIMALLY, 25% on the downside.

As for demand, I firmly believe that the ever present argument that, “When China buys, the markets will HAVE to go higher!”, is absolutely in error. The Chinese, being the biggest end users on the planet, KNOW that everybody keys on what they are doing…And they are NOT idiots, so this idea that they’re going to be impatient and have no choice but to load up on the buy side of the markets at these historically high prices just sounds absurd to me. They CAN buy on an as needed basis and wait for the pressure of South America’s harvest. And they CAN wait for the price pressure that WILL come when American farmers inevitably DO start selling (en masse I think as prices start cascading lower) their 2021 crops. And that IS what I’d guess China WILL be doing…Just waiting…And meanwhile? ALL of these crops that are perched up here WILL roll over.

 Here's the long term look in both Corn and Soybeans…

 

Here are the options I like here…And both of these positions are taken with the expectation of AT LEAST a 25% decline in both markets…

I say this is NOT going sideways...that it either makes new highs again...or DIES…Which is why I think the 2&1 is perfect here…Even though I have a VERY strong bearish opinion, it does not mean I will be right…And using the “insurance” of owning one call against every two puts is just smart here…If the market does go higher from here, you DO have a very real possibility of recouping what you have on the table…AND…then repositioning with those same funds at better prices…AND…if Corn does collapse as I think it will, you will NOT miss the bucks you spent on the call. THIS IS JUST BEING SMART.

 And same here…NOT going sideways…Using the both sides thing is just the smart way to do this…

Obviously, you can just buy the puts, and use an approach that if new highs are made, at some point you would cut them loose…maybe if they lost half their value…and then reposition with more time and/or higher strike prices…AS THE HISTORICAL DATA DOES SUGGEST THAT A SIGNIFICANT SELL OFF DOES OCCUR IN JUST ABOUT EVERY CALENDAR YEAR...but absolutely does not guarantee that it will happen...At any rate there are other ways to handle the risk management side of this trade, but I still think the 2&1 is absolutely the best way to go…

Get in touch if you want to talk about any of this…

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: Corn, Soybeans

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