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February 2, 2022

 

I have been calling for a major top in the row crops for a while now…and wrong…or maybe just early (but still the same)…but MORESO THAN EVER, I DO THINK WE ARE THERE.

The last 10 days have been jampacked with bullish news (mostly Ukraine and South American weather), and I have lately seen some analyst’s opinions that are talking higher price levels ahead, that I believe, are bordering on the absurd…which IS the sort of “won’t EVER stop” rhetoric that is present at just about every top we’ve ever had in the commodity markets.

And it is my opinion that we are seeing that one last bull market sucker rally…on purportedly bullish news…that draws in just about every last possible buyer, including both end users or speculators…to the extent that with “everybody long,” you do reach the point where there really are no buyers left to push the market higher…And then? There is nowhere to go but DOWN, and in the crops, as I have documented many times, it’s usually FAST and BIG.

And there ARE clues that these recent rallies are that last sucker rally…

In spite of the fact that with Russian and Ukraine representing a third of the world’s Wheat exports, the situation there has been touted as being roaringly bullish for Wheat and Corn…BUT…Wheat has now dropped 80 cents, pretty much straight down, since last Tuesday…And not to mention that the weather reports from Brazil and Argentina are also “Hot & Dry”, supposedly directly impacting Corn production, but Corn futures, in spite of very bullish news, are currently down about 12 cents for the week…So? When bull markets IGNORE bullish news, it can easily indicate that, as noted above, you have reached the point where everybody is IN…and waiting for what they think are inevitable profits (supported by bullish story after story)..when the truth is, the upside game is OVER.

At some point, and yes, maybe NOW, selling IS going to come from everywhere…including farmers who are sitting on mountains of product harvested last fall…and I maintain we WILL see the same MASSIVE sell offs in Corn and Soybeans (and Soybean Oil) that have been almost annually recurrent for the past 50 years.

 I REMAIN BEARISH ON CORN, WHEAT, COTTON AND THE SOYBEAN COMPLEX…

But I CONTINUE TO VIEW SOYBEAN OIL AS THE MOST OVERVALUED COMMODITY ON THE BOARD.

Every time I look at this, all I can think is “BIG short.”

 

Obviously, I could still be wrong about the timing here, which can just as obviously mean LOSING money, but simply as a function of the numbers here, I do think this trade has gigantic potential…more so really than the Eurodollar Puts ever did.

I CONTINUE TO BELIEVE IT WILL EXPERIENCE AT LEAST A 30% SELL OFF IN THE COMING MONTHS.

The Math: I continue to see this market back in the low 40’s…or roughly 20-25 cents from here, meaning about $12,000-$15,000 per contract.

 

Or do this…

By my estimation, it would take a rally up to about the 70 cent area to cut this option’s value in half…In which case it WOULD make sense to take the loss. And then, with the market at 70 cents…or more…be ready to reposition short again with higher strike prices. THE MATH HERE SUGGESTS THAT LOSING $750 IS NOTHING COMPARED TO THE POTENTIAL IF/WHEN THIS MARKET DOES GO DOWN…WHICH IT WILL…SO, IN MY MIND, THE TWO MOST IMPORTANT FACTORS HERE…IRRESPECTIVE OF TAKING AN INITIAL LOSS…ARE:

  1. ABSOLUTELY MAKE SURE YOU ARE THERE WHEN IT SHOWS ANY SIGN OF A TURN
  2. STAY ON IT IF IT STARTS WORKING…and really, for most people, this is the hard part.

I might easily be dead, dead wrong, and if I am you will definitely lose money…But I think this HAS to happen…and making the potential profit here, which is a large multiple, is simply a matter of executing the game plan.

This ain’t gold…or diamonds…or anything else that takes millions of years to create…Soybeans are grown around the world, 365 days a year, and whatever the circumstances that may result in high prices, production WILL catch up with demand…and prices WILL go back down. And if you take another look at the 50 year cash chart, it usually does not take long before the INEVITABLE does take place.

 Quick takes on other row crop recommendations…

First up: The 2&1 thing has worked extremely well, to the extent we took very small to non-existent losses during the recent fairly stout rallies in Corn and Soybeans...and in fact, have liquidated both calls & puts yesterday and today…And repositioned at current levels with very close to the same money we started with…And owing to my knowing that these markets CAN keep going, we continue to use the same approach…Make no mistake though. I DO THINK THESE MARKETS ARE ON THE BRINK OF REVERSING (OR HAVE ALREADY DONE SO) AND I DO NOT WANT TO BE OUT OF ANY OF THEM.


CORN

Because it has done it so many times for the past 50 years, I DO look for this to go relatively straight down...And you can't see it well on the chart, but this contract reversed hard to the down side today, which I assure you, TOTALLY surprised a whole nation of traders and farmers.

 

SOYBEANS

Same here…They crack from one day to the next…and then go relatively straight down…usually knocking off 25-30% ($20,000 to $25,000 per futures contract) within 2-3 months…And yes, the 2 & 1 thing has been working beautifully during this last eruption.

WHEAT

 COTTON

As Cotton options have been prohibitively expensive, although I am EXTREMELY bearish, we have only been "probing" with a few cheap options here...and losing money. I can't recall when I ever have seen everybody in an industry so CERTAIN that this contract can't go down...which, to me, is NOT BULLISH..quite the contrary really…But as they say, "Cotton is Cotton," and I think this sometimes manipulated  (I believe) contract will evaporate before it goes off the board. I STILL SEE IT STRAIGHT DOWN INTO THE LOW 90’S…for starters.

Enough for one day…We are STILL SHORT EURODOLLARS…

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, Soybean Oil, Soybeans, Cotton

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