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April 20, 2021

When the bullish balloon pops in Soybeans, I continue to believe that the sell off is going to be a monster.

The first two graphs following are my depiction of the way the futures markets have worked for as long as I have been a broker…with the bottom line being that when you get down to it, virtually NO ONE involved in this business thinks independently…Whether they be analysts, or farmers, or end users, or speculators…they are ALL just reacting to, and REPEATING, what everybody else is saying and doing…they are all looking at the very same interpretations of data…especially in today’s instant information internet world…And eventually, as I have seen too many times to count, everybody therefore ends up crowded together on the same side of the market…with them all unanimously citing the same “logic” as to why prices “have to be heading higher (or lower).” BUT, in doing so, they routinely fail to understand a basic tenet of the FUTURES markets (NOT the PRESENT market in other words): That if EVERYBODY “knows” something…if EVERYBODY is on the same page…I assure you that everything they “know” is ALREADY reflected in today’s market prices…And yes, you DO reach that point where, as it keep saying, EVERYBODY WHO WOULD BUY….HAS BOUGHT.

In “pictures”…How a market goes from ultra bearish to ultra bullish…

At a market bottom, ALL the masses can see is that there are supplies piled up everywhere, leading them to conclude, “Prices are heading lower!”, but the truth is, prices are ALREADY LOW  because they are ALREADY reflecting an abundance of supplies…and all the rhetoric about “why we’re in a bear market,” are just rehashes of why the market WENT down…And so, what generally happens next is that the mountain of supply begins to get smaller, due to maybe increased demand and decreased production, and in the face of all the bearish “logic,” prices start to rise. In other words, the cycle reverses and “catches” everybody short…which is exactly where we were a year ago when pretty much every analyst on the planet was Bearish, and Short, Soybeans down at $8.50…before we started a rally that has now carried up to almost $15.00 a bushel…and which has all those same people now full blown bullish.

 Here’s the “picture.”

And this is where we are now in Soybeans (and Corn)…wherein the talk IS of “running out,” and I am of the strong opinion that it is time for the cycle to reverse again…

I don’t think I have seen a bearish word about Soybeans for the past 3-4 months…I mean, ALL the news has been non-stop bullish with, literally, talk being out there of “running out” of them this summer. Whether it’s been weather, or exports, or Argentina, or Brazil, or potential China buying, IT’S ALL BULLISH OUT THERE…AND HAS BEEN…And maybe I’m just an old hack commodity broker and about to be proven stupidly dead wrong, but for my money, with all that bullish news, the fact this market has basically been just sitting here for 3 months, assuredly picking up more and more bullish leaning buyers, is just TYPICAL of exactly what I’ve portrayed on those two charts above.

I CONTINUE TO THINK THIS MARKET IS LOADED WITH PEOPLE ALL LOOKING IN THE SAME DIRECTION…UP…AND THE NEXT THING WE ARE GOING TO SEE IS AT LEAST A 20-25% COLLAPSE AS NOT “RUNNING OUT” BECOMES A REALITY.

I CONTINUE TO RECOMMEND BEING SHORT SOYBEANS…USING THE BOTH SIDES STRATEGY…AS I BELIEVE I AM EITHER VERY WRONG, AND BEANS WILL BE MOVING SHARPLY HIGHER…OR I AM VERY RIGHT AND THEY ARE HEADING SHARPLY LOWER.

 

And I am more bullish than ever on the Feeders…

More than once in March and April I was just dead certain this market was breaking out…and about to go big…right up until 8 days ago when they were into new highs…then painfully watched them sell off for 8 straight days…I might be mistaken, but in my mind there NO question that this decline was in direct response to all of the bulled up hype that is being touted in Corn and Soybeans…as they are the main feed ingredients in Feeders, and when the cost of feed is perceived as rising sharply, it can deter cattlemen looking to buy steers (Feeder Cattle) and put them in a feedlot. Without getting longwinded, I’ll just say I regard this fear based sell off in this market as TEMPORARY…that easily could have reversed today…and therefore see this, here and now, as a major buying opportunity.

 

I look at the August contract below (more time and therefore more expensive options) and honestly believe that it might be years before we see 150 again...that this last "dip" IS just that...a dip before this thing swings into a higher gear...out of its "crawl" higher since October...and that it WILL, as I have drawn, push up towards even the $1.90 level. The economy IS opening up, more and more, and maybe I know nothing about the cattle market, but I do think it has nowhere to go but a LOT higher.

 

And finally…I have to own up and say that the last 3-4 months of sideways action in Soybeans and Feeder Cattle (including the recent 8 day 8 cent sell off) have just eaten me alive…as well as all of you who have been there with me…and while it’s worthless to do so, and certainly does not make up for what you have lost, I very humbly apologize. Believe me, getting rocked like this, with my own money, and yours,  absolutely leaves me feeling awful, and definitely questioning my opinion and my decisions. However, having been here before, I remind myself that just because I have been wrong does not mean I will continue to be so…and more specifically, after having re-examined both of these ideas as objectively as I possibly can, I am sticking with both markets because I do see them as having VERY big potential…and, in truth, their having BEEN sideways, only increases the odds that they ARE about to move…Beyond that, I remind myself, and I absolutely know it to be true, as is posted on the wall in front of me, ONE GOOD TRADE IS ALL IT TAKES.

We’ll see. I hated doing it, which is partially why I did make the move, but I put more money into both of these markets at today’s close.

Thanks,

Bill

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866-578-1001

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, Feeder Cattle

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