May 15, 2019
Whether it’s at the top of a commodity market, when everybody is screaming, “There isn’t any left!”, or at the bottom when the same people are yelling, “We’ll never be able to use it all!”, ALL markets do turn around when NONE of the fundamentals suggest that they should.
This past weekend, with Trump suddenly raising tariffs again, and the Chinese immediately and strongly retaliating by doing the same on Sunday night, my instantaneous take was that the news simply couldn’t get any worse than this…and that if this was correct, the odds, in my opinion, had gone sharply higher that a bottom was imminent…This may sound counter-intuitive, but the fact is, when you reach the point that the ONLY sellers are speculators, NOT the people who actually produce and use the commodity, that IS when markets generally turn back up…And seemingly, FOR NO OBVIOUS REASON…As I have stated hundreds of times during the past 39 years, nobody EVER rings a bell and says, “This is the bottom. Buy this market now.” Same old adage: IT IS ALWAYS THE MOST BEARISH AT THE BOTTOM. In my experience, there is never, ever ANY “reason” to be a buyer when a market is ready to turn up off of its lows…I would also add that just about EVERY commodity market bottom I have seen was accompanied by record supplies…and I do mean EVERY.
I may be dead wrong but that is where I think we are now. I think the agricultural markets have absorbed all the negative news that we possibly could have…and with the weather already being a little “iffy”…I am seeing this week’s sharp reversals to the upside, again in the face of HORRIBLE trade war news, as the beginnings of new bull markets in Corn, Wheat and Soybeans.
I continue to focus on Soybean Meal but do recommend owning all three markets as I think they are ALL going to go on the upside.
Charts follow. Give me a call if you want to talk about any of this.
I keep noting that Large Speculative Traders (the funds) have the biggest cumulative short position in Corn, Wheat and the Soybean Complex EVER in the history of commodity trading…and that sooner or later, they will have to buy those quite large short positions back. While Commitments of Traders reports (one market shown below) do not give you the timing, nor do they conclusively mean that a big move will take place, the fact is that the funds being forced to reverse their positions DOES often result in big, sharp price action…and that IS, I believe, part of the equation right now.
The chart following is a weekly chart of August Soybean Meal...Each "bar" here represents one week of trade. Last Friday, with DT raising tariffs again, Soymeal closed into new lows, down $10.00 for the week...Then Sunday night, with China's strong retaliation and tariff threats of their own, all of the row crops opened sharply lower Monday morning…BUT…later in the day began to rally...OFF NO REAL NEWS whatsoever. They followed this by closing sharply higher yesterday and then again showed strength today...And what you see below, in the Soybean Complex…which IS where the primary negative impact of the trade war has been focused…is the single biggest weekly upswing since this contract started trading over two years ago. Coincidental? Meaningless? I think not. I absolutely think what you see here is the bottom of this market.
I AM LONG ALL THREE MARKETS BUT AM JUST PROVIDING OPTION PRICES IN SOYBEAN MEAL HERE. CALL ME IF YOU WANT TO KNOW MORE.
Call if you want to talk about any of this…
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: Soybean Meal, Wheat, Corn