June 30, 2008
In my May 30th "monster" newsletter I recommended shorting the Corn market...Immediately following that newsletter the Midwest floods came and Corn rocketed almost $2.00 in just two weeks time...As a result I think this trade now has even bigger potential than I thought it had a month ago.
Weather events in crops tend to be finite. By finite, I mean: The water comes. It's all over the news with aerial shots of acres under water. It looks horribly disastrous (and it is), but the percentage of crops lost quickly becomes a "known" in the market...And at some point, usually at the height of the news, when there is NO reason to be bearish, the bull move abruptly stops, and drops, more often than not, as straight down as anything ever does in this business. At any rate, this has been my observation over the years, whether you're talking droughts or floods...and I think it will be no different in this case.
A few maybe pertinent thoughts...
All those millions of surrounding Midwest acres that were not flooded are certainly not in need of water and are probably in excellent shape. I believe the old adage, "Rain makes grain", is one of the more accurate market wisdoms and would therefore not be at all surprised to see the undestroyed crops out there (maybe 4-5% of corn acreage was lost?) turning in far superior yields than might be expected.
Here is an opening excerpt received in a what I believe to be a particularly significant recommendation from ADM last week (June 23) regarding buying the corn market.
Many producers are asking for advice on how to get long corn futures for numerous reasons:
1) They think the market is going higher,
2) They want to replace previously sold (liquidated) cash corn positions,
3) The want to replace corn lost due to the recent floods, etc.
The recent crop damage in large areas of the corn belt, particularly, has sponsored renewed interest in long corn positions.
What this tells me is that ADM is being swamped (no pun intended) by farmers, who AT $8.00, are just rabid to be long the corn market...Frankly, those three reasons listed above are just mind boggling, essentially indicating farmers are dead certain the market is going higher and they absolutely have to have a piece of it, no matter what...I'm sorry, and I love farmers, but they are usually classically, tragically wrong when it comes to predicting futures...Yes, there are (or have been) a multitude of wonderful reasons to be long corn...BUT THESE ARE THE FUTURES MARKETS...Prices have reached the "stupid" stage, and all you have to do is take a year by year look at the long term chart below to get an idea of what comes next...Friends, every bull market there ever was ended with the media/masses just screaming something like, "We're gonna run out of it!"...and this is exactly where I believe corn is now.
I say SELL IT and SELL IT NOW. I look for at least a 30% collapse, which equates to about $2.50 ($12,500 per futures contract) on the downside.
If you interested give me a call but I 'd suggest you don't waste any time doing so. This is not sales hype...just the nature of the beast...I believe this market is LOADED with long specs (many of them "newbies") and they are IMMEDIATELY about to find out how nasty futures can be, especially when they are going down.
And just a reminder again...From my May 30th newsletter, here's what happened in Wheat, which earlier this year was ALL over the media as a supposedly neverending bull market...And then dropped 40% in the space of two months. I've seen this too many times not to expect the same thing to now be coming in Corn.