May 11, 2021
In the fell clutch of circumstance
From Invictus, by William Ernest Henley
A few years ago, I began writing that the agricultural sector, including farmland, was THE most undervalued asset class on the planet…which subsequently led to my “Buy Everything” campaign last spring…And so with the rallies in “everything” that started last year, we did quite well and pretty much successfully rode a handful of markets to nice profits until last fall…when I obviously got off of Corn, Wheat and Soybeans far too early…especially considering that Corn and Soybeans, with a few pauses along the way, have essentially been straight up ever since, including last month’s roughly $2.00-$2.50 rally in both of them. And to make matters worse, per my recent recommendation to Short Soybeans, those latest rallies meant losing money…but the real sting came in my Long Feeder Cattle position, which, directly in an opposite correlation with the Corn rally, just went straight, straight in the tank…dropping about 25 cents in 19 trading days…meaning more losses.
After 40 years in this insanity, I am pretty tough when it comes to losing…but in spite of my credo, “You WILL be wrong. You WILL be right,” I am human and when everybody loses their asses, and mine too, it does do a number on my self-respect and confidence in my opinions. I do look in the mirror and think, “You f’ing dumbass. You don’t know sh*t about the markets.” Really. I just HATE myself and walk around every day muttering the same…BUT…having been here before, where a strong, and I believe, well founded opinion blows up in my face, I do know what QUITE often comes next…And that is that whatever I have been wrong (early?) in recommending DOES then start working…then and there…right when everybody is out, and nobody wants to “lose another dollar,” or hear anything that I think…and when I personally just want to crawl under a rock…or when the last thing I want to do is get on the phone and say, “Hey. YOU GOTTA DO THIS!” Nope. I just don’t want to...Like I said. I am human.
But I also know that it is useless for me to be sitting here 2-3 months from now with the trade working, and nobody on it, and thinking, “Why didn’t I call them? I KNEW what was coming.”
Okay…All of that was maybe a waste of time but that is the real world…or mine anyway…and I have been here before, and no, I do NOT “know” what is coming…But I DO believe that FEEDER CATTLE ARE NOW THE MOST UNDERVALUED COMMODITY ON THE BOARD…THAT THEY ARE TOTALLY OUT OF “WHACK” WITH ALL OF THE OTHER COMMODITIES THAT HAVE BLASTED INTO THE STRATOSPHERE…THAT THE RECENT CATTLE MARKET SELL OFF HAS FULLY ACCOUNTED FOR WHATEVER MIGHT HAPPEN TO CORN AND FEED PRICES…AND I THEREFORE ABSOLUTELY BELIEVE THAT FEEDERS CAN GO ABOUT AS STRAIGHT UP FROM HERE AS ANY MARKET EVER DOES.
As always, for real, I might be dead wrong, but I CONTINUE TO RECOMMEND BUYING FEEDER CATTLE…MY FIRM OPINION IS THAT AS MUCH AS A 40-50 CENT RALLY FROM HERE IS EASILY POSSIBLE.
What crashed the Feeders last month…
A month ago, with the economy opening up again in just about every way possible (including restaurants and major outdoor events) Feeders were on their highs and beginning, I believe, a strong breakout from an almost yearlong consolidation…But then Corn took off again on the upside, and it truly produced a VACUUM of buyers willing to pay up for a 700 pound steer and then feed it more and more expensive Corn for the next 4-5 months…And with no buyers, Feeders just FELL OFF A CLIFF.
Here’s the chart picture…and it’s pretty obvious what happened.
And now?…Although bad weather can still become an issue for Corn, normally GOOD weather can also be coming…and it is my guess that all of the bullish news HAS already been built into the Corn market…that we ARE going to produce a massive crop…and that the odds are now high that the peak has been seen in Corn…And if this is even close to being true, I see nothing that should hold the Feeders back from here.
I would add that last year, following the sharp COVID related sell off in the Stock Market, and the immediate recovery back to its previous highs, I wrote that the Dow was still “behind schedule for where it should be,” by which I meant I thought it would continue sharply higher. And I think that is exactly what we are about to see again in Feeder Cattle…that if this temporary (in my opinion) decline had not occurred, Feeders would already be pushing the 170 area…With this in mind, and I am not just “wishing and hoping,” in that I HAVE seen situations like this before, I definitely believe FEEDERS COULD GO UP TWICE AS FAST AS THEY CAME DOWN…to quickly catch up to where they “should be.”
Feeders compared to all of the other commodity markets…
And Feeders…? After the Corn selloff…STILL where they were a year ago?
Quite honestly, a month ago I got too aggressive and had my ass blown off with the selloff…but I do think it has only produced a bigger opportunity.
Here’s the bigger picture…
Believe me…They can go up faster than they came down. Feeders DO often produce “V” shaped turns…that is, from straight down to STRAIGHT UP.
Give me a call if you think this makes sense and is worth the risk.
Thanks for reading…
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: Feeder Cattle