July 5, 2017
The majority of this newsletter is a copy of what I wrote several weeks ago…The intention then (June 15th), and still is now, to present a picture of what could be happening in the Corn, Wheat and Soybeans this year as a result of record world demand and potentially abnormal weather during the balance of this summer…The weather, and these three markets, DO appear to be heating up…and I therefore encourage you to read this piece again…and then make a decision to do something with it…
June 15, 2017
This year it’s the Real Deal?
Corn, Wheat, Soybean Meal
The truth is, you DON’T “trade a weather market.” You simply have to be there with the early indications that something might be happening…and then you have to JUST MAKE YOURSELF SIT TIGHT for the ensuing 4 to 6 weeks…
I do not know what is going to happen with the weather and Corn, Wheat and Soybeans…but I do know what CAN happen…
With the fact that we have record world demand for all three of these commodities, I do know that ANY weather problems…ANYWHERE on the planet…could see any or all three of these markets going ballistic on the upside…With this in mind, and the realization that various weather “situations” are already potentially becoming adverse to crop development, I PERSONALLY WILL NOT BE OUT OF THESE MARKETS FOR THE NEXT 6-8 WEEKS.
Very importantly, you have to understand that weather bull driven markets are NEVER obvious…UNTIL they are almost over. Droughts do not become droughts in one day, or even in one week. It’s a cumulative thing that typically develops over a period of maybe a month or two…and it is ONLY after the markets have made a significant advance that the media gets around to headlining and DEFINING what is happening as a “Drought!”, which in my experience, usually means the move is almost over…or has become to too big to even begin to think about entering.
To clarify what I mean, here are closer looks at what Corn, Wheat and Soybeans did during our last serious drought, in 2012, with a few observations to hopefully help you understand that you WON’T know how big and fast the move is until AFTER it has reached its apex.
YOU HAVE TO BE THERE BEFORE THEY START…AND STAY THERE.
The lesson here is that they don’t just go straight up every day…from the get go…And there are plenty of pauses to keep you thinking, “nothing is really happening.”
Try to take yourself back to 2012 and imagine what the talking heads might have been saying from start to finish in this $20,000 a contract rally…And DO understand that during all of those 4-5-6 day pauses, analysts were probably not screaming, “Buy it!” More than likely, their attitude was, “The fundamentals are still bearish. This rally is overdone. Sell it!”
Until, of course, the whole thing was over on the upside…
I could show you breakdowns of many more weather market moves but they all look something like you see here…They start, literally, from one day to the next, and they DON’T start with some big banner that says, “Drought (or Flood) is a certainty. Get on now!” And while they can go fairly straight up as the Wheat did, they also can have 4 or 5 days out of 20 in which 80% of the move takes place...So again, the point of this whole newsletter is: YOU HAVE TO BE THERE BEFORE IT HAPPENS…AND THEN YOU HAVE TO JUST SIT TIGHT WHEN IT HAPPENS…In my opinion, this is the biggest, fastest thing that ever happens in this business, and my accumulated understanding of the psychology of this madness has taught me that if you aren’t “on it” before the rocket lifts off, you are NOT going to get on once you MAYBE realize what is happening.
And I would add that all three of these markets (charts following) just look like gigantic bottoms to me…that have had AMPLE time to go lower for the past year…and HAVEN’T…And I will then remind you, again, that there is no bell that rings to tell you, “Buy now.”
Without any doubt, some of the biggest trades I’ve ever been on were summer bull moves in all three of these markets.
And again…You are NOT going to get some Holy Grail Clue that this is about to happen (or already is happening). You’re either in this…or not. For my own money, I love the “look” of these markets…I love the fact that the funds have been so overwhelmingly short…I love RECORD world demand…I love that we are already seeing indications of weather problems...and I love what I think the odds of a rally are…I’m on this. As always, I might be dead, dead wrong, but my own view is that this is a chance to make a truly big hit…I am buyer now…and I WILL be adding if/as any of these markets “get it going.”, as, again, THERE IS NOTHING LIKE A WEATHER MARKET IN THE GRAINS.
$3483 buys all three markets…which means that if just ONE of them makes what I would call a SMALL move, you will probably come out ahead…And while it is certainly possible that all three will just lay here through the summer, or go down, meaning you could lose every dime you invest, I DON’T think that will happen. Quite the contrary…I think all three are going to do something SIGNIFICANT on the upside, and the only questions I really have are, how big will each of the moves be?
While I personally remain long all three markets, with Wheat having already moved semi-significantly, there certainly is an argument for only buying “units” of Corn and Soybean Meal here…with a total cost of $2021…In which case, again, even a relatively small move in either one could definitely make you a big winner…As always, if neither market moves, you could also lose 100% of what you have on the table.
I would add that using the 1 & 1 (1 call + 1 put) is also perfect for this situation…My view is that these markets are either going BIG…or they are going back down hard...and what they WON’T be doing is just sitting here for next few months.
And if you do think this makes sense, “watching it” is not really what you need to be doing. My take is, if this is going to happen, it’s going to happen right now…or, actually, already IS happening…and any given day can easily be just another big up day that gets missed.
Pick up your phone and call…
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: Corn, Wheat, Soybean Meal