April 17, 2012
I am coming right back with another letter because I see this idea as having giant potential and want to get as many people sold on the idea as I can…and as quickly as I can…before this “gets away”.
I probably will make some strong statements here but please be sure that just because I feel strongly does NOT mean I will be right…But I am a human being who has been totally immersed in futures research for 32 years and sometimes trades come along that I feel I’ve seen many times before…where charts, fundamentals, sentiment, etc. all line up so identically to situations I have seen in the past.
Apologies for everything below having been written so “loudly”, that is, all in CAPS. I started by wanting to make a few emphatic statements and just kept going…
ALL I HAVE HEARD SINCE LATE LAST SUMMER IS “CORN STOCKS WILL BE TIGHT IN 2012”, WITH THE RISK BEING WE COULD “RUN OUT OF CORN” BEFORE THE NEXT CROP COMES IN.
I DON’T THINK THERE ARE 10 FARMERS IN AMERICA WHO ARE BEARISH “OLD CROP” CORN. OLD CROP REFERS TO CORN THAT WAS PLANTED LAST YEAR AND WAS HARVESTED LAST FALL AND WINTER.
I HAVE SEEN COUNTLESS STORIES ABOUT FARMERS NOT BE WILLING TO SELL AT CURRENT PRICES, THE IDEA BEING PRICES HAVE TO GO UP TO GET THEM TO LET THEIR CROP GO.
I HAVE ALSO SEEN COUNTLESS STORIES ABOUT FARMERS BUILDING MORE STORAGE CAPACITY TO ENABLE THEM TO HANG ON TO THEIR CROP LONGER…THAT IS, “UNTIL PRICES GET RIGHT”.
I THINK THIS IS A CLASSIC, COMMODITY “DISASTER” IN THE WORKS.
BY THE TIME WE GET TO AUGUST, I THINK YOU WILL BE SEEING STORIES IN WHICH FARMERS ARE COMPLAINING THAT THE “FUNDAMENTALS DON’T JUSTIFY PRICES BEING SO LOW”.
BY THE TIME WE GET TO AUGUST, I BELIEVE THE OVERWHELMING MAJORITY OF FARMERS WHO ARE “HOLDING OUT FOR BETTER PRICES” WILL FIND THEMSELVES SELLING CORN DEEP IN THE HOLE, LIKE $1.00 TO $1.50 A BUSHEL BELOW CURRENT PRICES.
I BELIEVE YOU WILL BE HEARING COMMENTS LIKE, “THIS CAN’T BE. CORN PRICES ARE BELOW THE COST OF PRODUCTION.”
IF YOU’VE BEEN AROUND THE AG MARKETS FOR A FEW DECADES (MAYBE EVEN LESS), YOU HAVE CERTAINLY HEARD AND SEEN ALL OF THIS BEFORE…WHERE, FROM ONE YEAR TO THE NEXT, PRICES GO FROM BOOM TO BUST…IF YOU WANT TO ARGUE, “IT’S DIFFERENT NOW…CHINA IS GOBBLING EVERYTHING UP, ETC.”, FINE…BUT I SAY THESE ARE STILL THE SAME COMMODITY MARKETS. PRICES GO UP, A LOT…AND PRICES GO DOWN, A LOT. NOTHING IS EVER AT EQUILIBRIUM AND VOLATILITY, MORE SO THAN EVER, IS THE NAME OF THE GAME.
A FEW WEEKS AGO, WE HAD A “SURPRISINGLY BULLISH” REPORT FROM THE USDA, CONFIRMING, AGAIN, TO EVERYONE, HOW “TIGHT” CORN STOCKS WERE…AND CORN RALLIED BIG, ABOUT 60 CENTS IN 3 DAYS. HOWEVER, BY TODAY’S CLOSE, VIRTUALLY THE ENTIRETY OF THAT RALLY HAS BEEN GIVEN BACK…WHICH JUST CONFIRMS (IN MY MIND) THAT ALL OF THE BULLISH NEWS HAS LONG SINCE BEEN BUILT INTO, AND ACCOUNTED FOR, IN THE CORN MARKET…GOING BACK TO LAST AUGUST WHEN CORN WAS AT $8.00 AND EVERYBODY WAS CALLING FOR $10.00, THEN WATCHED IT DROP STRAIGHT DOWN TO $6.00 (AND STILL THEY ARE BULLISH)…I BELIEVE THAT EVERY POTENTIAL MAJOR BUYER OF CORN (USERS) THROUGH THE SUMMER OF 2012 HAS LONG AGO DONE THEIR BUYING, EITHER THROUGH FUTURES OR FORWARD CONTRACTS, AND ALL WE NOW HAVE ARE 1000’S OF FARMERS STILL SITTING ON THEIR GRAIN…AND OVER THE NEXT 4-5 MONTHS THEY WILL HAVE TO SELL THEIR CROP, AT WHATEVER THE PRICE, TO MAKE WAY FOR POTENTIALLY THE BIGGEST WORLD CORN CROP IN HISTORY, WHICH THEY ARE ALL PLANTING RIGHT NOW.
I RECOMMEND SHORTING MAY AND JULY CORN, IMMEDIATELY, AT THE MARKET, AND LOOK FOR A MOVE, MINIMALLY TO $4.50…AND CONSIDERING THE NATURE AND IRRATIONALITY OF THE FUTURES MARKET, I WILL EVEN GO SO FAR AS TO SAY I CAN IMAGINE JULY CORN TRADING AT WHAT MANY PEOPLE WOULD CONSIDER “INSANE” PRICES…LIKE EVEN $3.75.
HERE IS THE BIG PICTURE…
Here are several different
approaches to the trade…
Finally, if you are a farmer holding Corn, I would suggest you sell it…now…before the masses start doing the same thing…and if you are worried about it then taking off on the upside, buy a call option to cover it…If this doesn’t make sense to you, give me a ring and I will be more than happy to explain, whether you have an account with me or not.
Pick up the phone guys…This IS a trade many of you have seen before…And I’d add, even further out of the money options are viable here I think…