February 3, 2021
Short Corn and Soybeans (with both hands)
Last March, with Soybeans around $8.50, Corn at $3.50, Wheat at $5.20 and Cotton at 54 cents, I started my “Buy Everything” campaign of owning all of the row crops and all of the Meats. At that time, with Covid beginning to rage, the stock market having crashed, and world trade supposedly shutting down, virtually every analyst on the planet was OVERWHELMINGLY bearish pretty much every commodity on the board…and they pretty much stayed that way (negative) for the next six months as all of those markets steadily rallied…In early November, however, almost overnight those same guys suddenly declared that the “fundamentals are now bullish” and they semi-unanimously switched their endless “Be short!” recommendations in Corn and Soybeans to “You gotta be long!” And quite honestly, having the herd finally jump solidly on the bullish bandwagon unnerved me…and in November I exited Corn, Wheat and Soybeans…and have since painfully watched Corn and Soybeans rally significantly…And as that happened, for the past two months, I have watched the rhetoric from those same perpetually late-to-the-game “experts” ramp up their NOW bullish opinions to levels that I can only view as BEYOND extreme.
Having done this 40 years does NOT mean that I always get it right (for sure) but it does lend perspective that can only come with experience, and I will tell you that the “script” you are hearing now from analysts, and will hear repeated over and over in the months to come, is precisely the same “logic” that I have lived through many times in the grains…when they were on their way DOWN…when they had flipped from Bull markets to BEAR…too many times to count.
It goes like this:
“Supplies are extremely tight. The current stocks-to-usage ratio is at levels not seen in years…to the extent that the carryover could actually go to zero.” In other words, there are analysts out there suggesting “We could run out of Soybeans!” (and Corn). And straight up, when opinion reaches the point of, “There aren’t any left,” it can’t get any more bullish than that. Furthermore, if this were true, my question would be, “Why aren’t we already at $20 Beans and $10 Corn right now?”
Or you will hear this: “China has been buying enormous quantities of Corn and Soybeans during the past year. If they continue to do so, there’s no telling how high prices could go.” All last year, ALL I heard was “China’s won’t be a big buyer. None of this stuff can go anywhere on the upside.” And NOW? Well, we know that they WERE buying…in cumulatively big numbers…and do note that I put “WERE” in the past tense…The Chinese aren’t stupid. As Earth’s biggest importers, they KNOW that the world watches them so they were perfectly content last year to let analysts think they were NOT that interested…And now? When prices have almost doubled for Soybeans? Do you really think they are going to be “chasing” a market that WENT up because of their purchases? Like I said, on multiple occasions in the past, I have seen this “If China buys more” bullish argument…and guess what the end result seemingly always was? THEY TOTALLY DISAPPEARED…for several years even…and prices FELL…and fell…and fell.
In the same vein, another statement you will see repeated again and again is, “We are now x percent (a lot) ahead of the USDA’s export projections for the crop year (ending in September). If we keep up at this pace, we will blow those numbers out of the water.” And folks, we usually DON’T. For one thing, there are massive crops beginning to come, quite normally, out of South America, and whether or not they HAVE HAD weather problems, or whether or not the Argentinian or Brazilian farmers, truckers, dockworkers, etc. strike, or complain, or slow the export machine down, THE CROPS WILL GET EXPORTED…and export business here in the USA WILL slow down…And that, “we’re-ahead-of-the-USDA’s-numbers” stuff will be meaningless…Nothing but fluff that keeps farmers and speculators thinking, “The rally is coming soon.” And it never does.
I have heard guys saying this is the most bullish Soybean set up ever. And I’m not being contrary to just be contrary…I have seen how this stuff works…or can work…I have been on the wrong side of Beans coming down…I have mistakenly made all those bullish cases outlined above…and suffered with it EVERY time I did…And I would remind you that ALL of the above, including “most bullish set up ever,” IS KNOWN…and in my opinion, more than likely HAS BEEN ACCOUNTED FOR IN TODAY’S PRICES…and more than likely is the reason we HAVE BEEN to $15.00 in Soybeans and $5.50 in Corn.
I would remind you that once the “tightness” is known, and is making headlines all over the newswires, any and everybody who needs the soybeans (or corn) goes ahead and contracts or buys them for the future…In other words, when “experts” are talking about “running out” of soybeans, NO end user in their right mind would think anything but, “I have to buy them NOW. I have to lock them in NOW to be sure that I can get them when I need them.” So they run out and buy everything in sight…And this IS precisely why bull markets DO just suddenly run out of buyers…as you do eventually reach the point where everyone who WOULD buy HAS BOUGHT…And then? When that resulting VACUUM of buyers becomes reality, especially with prices in the relative stratosphere, the only thing that can then happen is usually some degree of a crash…or what I’d call a VAPORIZATION of prices…WHICH IS THE SPECIFIC SUBJECT OF THIS NEWSLETTER…HOW SOYBEAN BULL MARKETS HAVE ENDED DURING THE PAST 40 YEARS…and I promise you, every single one of the examples you see below ended with the whole ag world JUST AS BULLED UP AS THEY ARE NOW.
Soybean Tops Since 1980 – How fast and big they initially went down…
WHEN SOYBEANS ARE READY TO QUIT…
FOR THE FIRST 2-3 MONTHS IT CAN BE BRUTALLY BIG AND FAST ON THE DOWNSIDE….
A QUICK SUMMARY OF THESE HISTORIES…
What often transpires is that what actually happens seems unthinkable, unimaginable…when you’re sitting there on the highs and analysts are screaming about “running out” of crop…the idea of the market sinking like a lead balloon just doesn’t seem possible, but this is precisely what they do over and over and over…
DO understand that in every single instance here, when the top tick was being hit, every bit of news out there was screaming, “They can ONLY be going higher!” And I mean all of it. Which IS what I’m seeing across the board right now.
When they quit, they just quit…There’s no big signal that says, “Hey, the party is over.” There’s no “bearish” report or event that says, “Hey. Go short now.” NEVER. They just quit. Everybody’s in and everybody who would buy, especially with news like, “We could run out of them!”, HAS BOUGHT. And from there, ANY degree of selling meets with a vacuum of buyers…and the “flame out” begins. And again, it’s not a noisy ending. It’s just a quiet day by day thing that eventually accelerates and becomes cumulative…
So, where could we be by May? If it’s 25%, which, in today’s wild ass environment, I view as easily possible, this would put them back at about $11.00, which even then is not anywhere close to cheap…And to reiterate, you can be sure that all the way down, analysts will talk about how, “We’re already X% ahead of the USDA’s export predictions,” and “If China starts buying again,” and “If we have any problems with the weather,” and “We’ve had record crush.” etc…In other words, we’ll hear nothing but bullish rhetoric all the way down, same as last year we heard bearish rhetoric all the way (or most of the way) up.
Here’s the big picture…See for yourself how QUICKLY they go from bullish…to somewhat COLLAPSING.
Here are the puts I am buying at current levels…
Follow ups to existing recommendations…
Still aggressively long ALL of the meat contracts…
And still VERY bullish on the Dollar and bearish the Eurocurrency…
The USA is still THE economic and consumptive engine on the planet. The USA is still THE "destination of choice," and as our economy explodes upward throughout 2021 and becomes the hottest economy anywhere, I look for an avalanche of funds to be coming here...And the DOLLAR, which seemingly every talking yakhead in the media is nothing but overwhelmingly bearish, WILL RALLY SHARPLY. I think the bottom is in for the Greenback...and THIS MARKET WILL ONLY BE HEADING HIGHER.
As always, my recommendation is to buy “units” of 1 option each in all of these markets…with the total for these six being about $8300. I will say I do have priorities as to which I believe are “must haves,” so give me a call if you want to talk about a more concise “unit,” or really, anything I have discussed here.
I WILL CONTINUE TO SAY THAT I THINK THESE ARE BEST MARKETS WE HAVE EVER HAD…WITH VERY LARGE MOVES BEING ALMOST ROUTINE…ACROSS THE BOARD.
And I will address Cotton, which we are STILL buying in the days to come…
Thanks for reading. Pick up the phone and call me…Don’t just WATCH all this happen.
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: Soybeans, Corn, Live Cattle, Feeder Cattle, Lean Hogs, Cotton, Eurocurrency