March 4, 2019
Buy Them All…
Or Just Buy One…
But Buy Something.
I don’t think I have EVER seen farmers, farm advisors, analysts and speculators as universally negative as they all now are regarding any of the four major USA row crops…Corn, Wheat, Soybeans and Cotton…
I mean, NOBODY talks at all about, “where _____could go on the upside.” Very much to the contrary, EVERYTHING I hear is directed towards “where to sell” (quickly) if we rally, at all, from here…OR…how LOW we could go if soon-to-be-planted crops do well this year…Again, I hear NOTHING out there about potential upsides…I know there must be some bulls out there somewhere, but talk of any sustained rally, in any of these markets, is virtually non-existent.
I have been here before. This is the way it’s been at every major ag market bottom I have ever seen…Where everybody is so discouraged by the endlessly low prices (that we HAVE HAD) that NOBODY HAS THE SLIGHTEST INTEREST IN BEING A BUYER…WHEN…RIGHT NOW…THAT IS WHAT I FIRMLY BELIEVE YOU SHOULD BE DOING. WHILE EVERYBODY “HATES” IT. AND WHEN OPTION PRICES, IN MY OPINION, ARE JUST CHEAP AS DIRT.
BUY ALL FOUR MARKETS…HERE AND NOW.
To me, the chart following says it all…That buying here is basically buying farmland acreage, or the crops that are grown on it, at 10 year lows…after it has been doing NOTHING for the past 5 years…I mean, I KNOW, that if you want to buy farm acreage, you are going to PAY UP to do so…After 5 years of low crop prices, the price of farmland is NOT going down…and neither are the values of the crops that get planted on it. I may be dead, dead wrong, BUT I THINK WE ARE AT THE LOWEST AG PRICES THAT WE WILL SEE FOR DECADES.
Believe me…Nothing about producing these 4 markets has gotten cheaper in the past 10 years…. And all of these crops are at or BELOW their true costs of production.
This is the longest we have been sideways for at least 40 years…which definitely raises the probability that something big is coming SOONER rather than later…And I might be naïve, and dead wrong, but I see absolutely NO WAY for this chart to go down…which ONLY LEAVES UP…And I am 100% convinced that, if it were not for the whole trade war thing…which IS ENDING…we would ALREADY be substantially higher in every one of these markets.
My recommendation is to buy units of 2 calls and 1 put in all four markets, using the July, 2019 contract.
Here is what approximately what you would spend:
2 & 1 July Soybeans - $3780
2 & 1 July Corn – $2380
2 & 1 July Wheat - $3230
2 & 1 July Cotton - $4320
Total all 4 markets - $13660
There are any number of permutations as to how this would play out, but generally speaking, if just one of them moves moderately and the other three totally flatline…that is, end up exactly where they are today and totally worthless…the worst you would probably do is break even (see numbers below)…And beyond that, I will tell you that if all four of them do not move AT ALL from here, you stand to lose 100% of whatever you invest.
However, the flip side is that I strongly believe that all four of these markets WILL at least have had decent bullish moves before we get to July…with approximations of what the potential results might be as follows:
$1.50 move in 2 Soybean Calls becomes $15,000
$1 move in 2 Corn Calls becomes $10,000
$1.50 move in Wheat becomes $15,000
15 cent move in Cotton becomes $15000
To give you an idea of how moderate those moves are…Here are the long term perspectives in each of them…
I assure you, as can be seen in the charts above, that NONE of those possibilities I listed are anything close to being what I would classify as BIG moves for these 4 markets…And the truth is, I believe all of them will move a LOT more than any of those estimates…
For one, I am firmly of the opinion the whole trade war thing IS drawing to a close which can ONLY be a positive…
So the next thing, aside from the fact that WE DO HAVE RECORD WORLD DEMAND FOR EVERY ONE OF THESE CROPS, is that we now have to plant, grow and harvest all four between now and next fall…And with record demand, if you do get ANY weather issues…which includes too dry, too wet, too cool, too hot, etc., or even just “weather scares”…that begin, AT ALL, begin to potentially reduce production, you should then be aware that these markets can, from one day to the next, basically start going ballistic on the upside.
And that being said, here is a seemingly innocuous quote I picked up from a prominent Midwestern grains analyst this past Friday that REALLY got my attention: “Normally this time of year we are warmer and drier…and farmers are in the fields. We don’t have that right now.” And no, they wouldn’t be planting in the Midwest yet, but they should be starting to prep the land and their operations…and when I hear that ANYTHING about the weather is abnormal, my bullish antennas go straight up.
Weather markets don’t just appear overnight…They build day by day, week by week, as the delays (in this case…right now, too wet and too cool), or losses, start to creep into the market…the result being that one day you look up and realize that Beans have quietly added 50 cents…And even then, all that you’ve maybe seen is the countdown to a liftoff.
Guys. The MEDIA IS NOT GOING TO RING A BELL AND TELL YOU, “GET ON THIS NOW.”, or at least not until we have substantially LEFT THIS TEN YEAR LOW…AND 5 YEAR CONSOLIDATION.
I urge you to do something with this now…While it’s quiet…And while options are so cheap…And yes, if all you can handle is one market, or two…that works as well. Just DO SOMETHING HERE.
Please give me a call…
All option prices in this newsletter include all fees and commissions.
The author of this piece currently trades for his own account and has a financial interest in the following derivative products mentioned within: Corn, Cotton, Soybeans, Wheat