February 18, 2016
I continue to believe that all the nitwit analysts who are squawking about a world slowdown, stocks crashing, and a continued decline in commodity prices are just as typically backwards as they always are…Gold, a LEADING commodity inflation indicator, has rallied $200 an ounce since December and is now entering the headlines…and has NOW become a subject again for all the yakheads…But did you hear ANY of them saying “Buy Gold” two months ago? NO, NO, NO…They were ALL on the bearish gold bandwagon (after being wildly bullish some $700-$800 higher 4 years ago).
I CONTINUE TO BELIEVE THAT COMMODITY PRICES ARE READY TO RISE AND THAT SOME OF THOSE COMMODITIES ARE SET TO DO SO EXPLOSIVELY…and ESPECIALLY THESE TWO…
BUY SOYBEANS…SPECIFICALLY, SOYBEAN MEAL…
In the midst of what I would classify as unanimously raging bearish sentiment for USA row crops (this includes analysts, traders, brokerage houses AND farmers), I see these two markets as presenting an incredible 1-2 punch for an imminent full blown bullish move to the upside…where you can take a relatively small amount of money, buy what I would call dirt-cheap 1 & 1’s with a LOT of time…and have excellent odds of making quite high percentage returns on what you have invested…Obviously, if I am wrong, you could also lose every dollar you put on the table…but this is a risk I am more than willing to take. I think both of these markets will make MAJOR BULLISH MOVES WITHIN THE NEXT 3-5 MONTHS...I maintain that 2016 will be quite different from 2015…when all of the four major USA row crops (Corn, Cotton, Soybeans, Wheat) basically were sideways to lower for the entire year…AND I AM FIRMLY CONVINCED ALL OF THEM ARE IMMEDIATELY SET TO BEGIN BIG RALLIES THAT WILL MOST LIKELY EXTEND ALL THE WAY INTO THE HEART OF THE UPCOMING SUMMER.
As I have been writing for a while now, I think it makes sense to own long positions (using the 1 & 1) in all four of the major USA row crops…Corn, Cotton, Soybeans and Wheat, but in the interest of focus (sometimes trying to cover too many markets in this newsletter can be too demanding), for the time being, I want to concentrate on the these two markets…
Buy Soybean Meal...THE major feed component for livestock…WORLDWIDE…
For starters, this first chart has REALLY had my attention for many months now…as there is something going on here that I have NEVER seen before. Price movement in all the markets IS a function of buyers and sellers entering and exiting their trades…And an “Open Interest” chart such as the one below shows you exactly how many futures contracts are held (both long & short) in a commodity at the close of business each day. NORMALLY, this reflection of market participation rises and falls throughout the year as a market moves up and down, thereby exciting players to enter…and exit…as that market goes from bullish to bearish and vice versa (and then maybe back the other way again)…As an example, you can easily imagine that if a particular market is in a roaring bullish phase (or bearish) and inspiring a lot of press, traders become attracted to whatever is generating the headlines and thus go diving in…often dramatically increasing the Open Interest as they, along with 1000’s of other traders swell the ranks of participants…But, what then often transpires, and we’ve all seen it 1000’s of times, is the market reverses…and the next thing you know is we find those same traders exiting the markets en masse…and we then see Open Interest contract, sometimes quite sharply…MY PRIMARY POINT BEING, THAT THIS IS THE NORM, THIS EXPANSION AND CONTRACTION OF OPEN INTEREST…BUT IT IS NOT WHAT I HAVE OBSERVED IN SOYBEAN MEAL…REALLY, FOR THE PAST YEAR OR SO…AND IN FACT, I HAVE NEVER SEEN ANYTHING LIKE THIS IN MY 35 YEARS OF RESEARCHING THE MARKETS.
Check it out…
Aside from my belief that this unending Open Interest surge can only be indicative of expanding world demand for Soybean Meal, more importantly is the fact that these very high numbers DO mean this market is relatively JAM PACKED with players, both Commercials and Speculators…and with this in mind, I would remind you that HEAVY TRADER PARTICIPATION, ESPECIALLY WHEN IT INVOLVES SPECULATORS GETTING OUT, QUITE OFTEN IS THE STIMULUS FOR VERY BIG, FAST COMMODITY MARKET MOVES…which is precisely what I am expecting here. This market IS in the hole, and as you will see on the following charts, Speculative Traders are VERY short (and again, in big numbers), and I think they are about to get absolutely toasted as Soybean Meal blows out of here on the upside.
Just how short Large Speculators actually are can be seen in the next few charts, as well as the fact that Commercials Traders (producers and users) are heavily dead opposite them on the long side, MOST LIKELY REFLECTING BIG ORDERS ON THEIR BOOKS…and if history is any guide at all, who do you think is going to “win”?
More “gobbledygook”, from another angle, but maybe this will help you grasp what I’m trying to show you…
There is no Holy Grail indicator in futures trading but there ARE clues that can be useful…which is what I think we have here…Again, speculative traders overloads are a routine occurrence in the futures markets…and sooner or later, the outcome always seems to be the same...i.e., the thundering herd of lemmings gets WHACKED…We’ve all been there…
And then there is this…And THIS IS NO SMALL FACTOR IN THE EQUATION…
And then there’s the weather…and the fact that crop production, everywhere on the planet, is highly dependent on NORMAL weather…which is the LAST thing I think anyone should be expecting. Whether you think Global Warming is real or not, the statistics, as noted below, are quite clear, and definitively suggest that ABNORMAL weather patterns are certainly a distinct possibility…And it doesn’t matter if it’s too hot, too cold, too wet, or too dry…If it’s “too” ANYTHING, it usually has a negative impact on crop development and/or supply.
Don’t just blow this article off…At least do read the highlighted sections.
To be honest, I absolutely think Soybean Meal is ready to go up even with normal weather…But there is no denying that either bad weather, or even just a “weather scare”, would just be added fuel to the bull market I am anticipating.
What I am expecting…
Here is what I’d do right
here…and I think these are some fantastic numbers…PLENTY of time…and what I’d
call a ton of leverage…
Take another look at the long term chart and note again how SHARPLY it moves…and if a $100 rally would look like a big deal.
And Wheat is pretty much the same picture…
There is just as much bearishness here…if not more really…as in the Soybean Complex…And here too, the FUNDS ARE JUST LOADED ON THE SHORT SIDE VERSUS NEAR RECORD COMMERCIAL LONGS.
I DO think these are great, great trades and I think they should be initiated here and now…or I wouldn’t be wasting all this energy trying to show you what I see…I urge you to get in now, while options are cheap…Not AFTER the fireworks start…as, for example, has recently become the case in Treasury Bonds, which have already seen a 7 point ($7000 per futures contract) downswing in the space of just 5 trading days…the point being, OPTIONS DON’T GET CHEAPER AFTER THE MOVE STARTS.
As a final note…I DO FIND IT INTERESTING THAT WITH ALL THE ANGST, FEAR AND TURMOIL IN OTHER MARKETS SINCE THE BEGINNING OF THE YEAR, CORN AND SOYBEANS ARE UP SO FAR FOR THE YEAR, AND WHEAT HAS ONLY FALLEN BY ABOUT 6 CENTS…WHICH I FIRMLY BELIEVE REPRESENTS AN UNDERLYING STRENGTH IN THESE MARKETS THAT CERTAINLY SEEMS TO CONTRADICT ALL THE BEARISH NONSENSE BEING TOUTED BY JUST ABOUT EVERY ANALYST I KNOW…THIS IS WHAT A BOTTOM FEELS LIKE GUYS…IT’S NOT EXCITING…THERE’S NO GREAT FUNDAMENTAL “STORY” TO ENTHUSE ANYONE TO BE A BUYER…BUT AGAIN, THAT’S ALWAYS THE WAY BOTTOMS LOOK AND FEEL...AND SURELY, FOR MANY OF YOU, YOU MUST HAVE SEEN IT ENOUGH TIMES TO UNDERSTAND THAT NOW IS WHEN YOU SHOULD BE PUTTING YOU MONEY IN THESE MARKETS (AGAIN, NOT AFTER THE MARKET RALLIES AND REALLY GETS EVERYBODY’S ATTENTION.…YOU BUY A DECENT AMOUNT OF TIME…AS EVER, USING THE 1 & 1…AND THEN LET IT HAPPEN.
THIS IS GREAT “MATH”. DO SOMETHING WITH IT…IF ONE OF THESE MARKETS DOES JUST DIE SIDEWAYS, AND THEN ONE OF THEM WORKS JUST MODERATELY, I THINK YOU WILL COME OUT NICELY AHEAD…AND I OBVIOUSLY THINK THEY CAN BOTH DO MUCH MORE THAN THAT…OR I WOULDN’T BE WRITING THIS.
And for farmers… If you are a farmer, I am sure all the bearish, bearish analysis out there has you ready to sell forward or sell whatever inventory you still own…but I am going say that the longer you wait, the better off you will be…and I do think it could be SUBSTANTIALLY better…Beyond that, if you do have to sell product, I would absolutely recommend that you replace what you’ve sold by owning calls on the board…And I would make that recommendation in Corn, Cotton, Soybeans and Wheat.
Give me a call…whether you are interested in doing any of this or not…I always enjoy talking to all of you…
All option prices in this newsletter include all fees and commissions.
The author of this piece currently trades for his own account and has financial interest in the following derivative products mentioned within: Soybean Meal, Wheat