February 9, 2021
WE ARE NOW SIDELINES IN COTTON.
It’s hard to get out with this looking so bullish but when at-the-money options are 4-5 cents with just two months left to go, buying those options just doesn’t make sense…even if we DO make it to my $1.00-$1.10 prediction.
I remain VERY BEARISH Corn and Soybeans
I have watched the entire financial media lately jump all over the “We are bullish commodities” bandwagon, and especially so when it comes to Corn and Soybeans, both of which I believe are MASSIVE shorts now…When the newswires are FULL of stories about end users scrambling to be sure they can get their hands on products in the future, or analysts talking about “running out of corn and soybeans this summer,” I can’t imagine that there would be anyone left in the real world who NEEDED to buy who hasn’t already done so. And that, my friends is what you get at a grain market top…that you can’t get any more bullish than, “There aren’t any left.” This IS a mob psychology game…and the agricultural media mob IS NOW ALL OVER the bull side…and with both Corn and Soybeans LOADED to the gills with speculative fund longs…, I firmly believe we will see at least 20-25% whacked off of both of these markets within the next 2-3 months.
THE BULL MARKET IN CORN AND SOYBEANS STARTED A YEAR AGO (again, with everybody bearish). I THINK IT IS OVER…not withstanding a true drought this summer of course.
If you know anything about the markets…FIND ME A REAL BEAR…ANYWHERE…and if you can’t, you must know what it means. Right?
AS NOTED IN MY PREVIOUS NEWSLETTER, 20-25% DECLINES, IN THE SPACE OF 2-3 MONTHS, HAVE LONG BEEN THE NORM WHEN SOYBEAN BULL MARKETS END.
I continue to be Roaring Bullish the Meats
If you know anything about the Cattle market, you are certainly aware that rising Corn and Soybean Meal prices tend to be a depressive for Feeder Cattle prices…that it’s no big mystery that if feed costs are going up, it doesn’t not encourage people to buy Feeders (thus pushing their prices up) that are going into a lot for 4-5 months when the cost of feeding them is ALREADY expensive…AND especially if everybody is screaming about even HIGHER Corn prices.
Simply stated, high Corn prices are supposed to be Bearish for Feeders…Which is why I find it so interesting…and frankly, ENORMOUSLY BULLISH FOR FEEDERS…that even with tremendous jump in Corn prices, and with all of the talk about “running out” and the loud calls everywhere for even sharply higher prices, FEEDERS HAVE REMAINED ESSENTIALLY ROCK SOLID…In other words, logic would have suggested that Feeders should have absolutely gone in the tank…And they haven’t…which leads me to think that the END of the bull move in Corn and Beans is about to send the Feeders, and the Live Cattle…and the Hogs…truly exploding out of the sideways to higher “bases” they have built over the past year.
It has been my observation that the Meats tend to move when everything else is “stagnant,” that while all the talking heads are chattering about other “bull” markets, Cattle and Hogs get it going on their own…that they have their own time table that is quite different from the other futures markets…So now, with all the ag guys talking Corn, Beans and Wheat, this, I believe, is the perfect time for the meats to be taking off…
I honestly wish I could walk out of here and not see any of the three meat contracts for the next 6 weeks…as I think there is no telling how high any, or all of them, might be by then...Obviously they could be lower, and therefore a 100% loser...but I do think this set up does have explosive upside potential...And right or wrong, sharply higher trades in all of them look almost like a given to me.
FEEDER CATTLE – This maybe 700 pound animal goes in a feed lot, and is fed for 4-5 months until it is slaughter ready.
LIVE CATTLE – And this is the 1200 pound cow that is ready for slaughter.
As always, my recommendation is to own “units” of puts/calls in each of the five markets, which would here cost $6070…If I am wrong on all five, you could lose your entire investment, but if we get just one of them right, you stand a good chance of at least breaking even…Of course, this is not the objective…Do the math for yourself as to how it works out if I am all, or partially, right here…which does lead to my conclusion that it makes sense to own them all. I have impressions but I NEVER know which market might turn out to be the hottest…or the worst.
Give me a call if you want to talk about this…or just to catch up on our lives in general.
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 Meal, Feeder Cattle, Live Cattle, Lean Hogs