July 16, 2022

 Still Shorting Corn, Soybeans and Soybean Oil

 I have a recommendation in a new market, but before getting to it, here is an update on my SHORT CORN, SOYBEANS AND SOYBEAN OIL positions.

After definitively (I believe) completing their tops within the last few months, and then undergoing recent “weather scare” rallies (and I emphasize “scare” as these sort of fake out rallies are commonplace in the grains at this time of year), Corn and Soybeans appear to have resumed their crash and burn declines…And have, in my opinion, absolutely entered bear markets that will at least extend out into late 2023.

As Soybean Oil has dropped roughly 29% in the last month, I have lightened up a bit but still continue to recommend shorting this market…and still look for the mid 40’s as a target…

However, the Soybean contract, at its recent low, is only down about 18%, and considering its 50 year histories, I fully expect to see it minimally drop by 30-35%, especially when it is my impression that the entire trading, investing, and speculative world is MASSIVELY long this and other commodities…and are WRONG and now heading for the exits…

Additionally, I firmly believe we have a nation of farmers who have bought into all of the ultra-bullish bank and brokerage house rhetoric shouting that crop prices would keep soaring, and are therefore sitting on mountains of product that they already should have sold…but HAVE NOT…and ARE NOW BEING SCARED (rightfully) INTO DOING SO…Meanwhile, on the buy side, I would guess that 99% of the end-user purchasing managers for these crops, listening to the same bullish talk, have also covered 100% of their needs (bought) for at least the next few months…and therefore CAN’T be buying anything near term…resulting in what I would refer to as now having an absolute VACUUM OF ACTUAL PRODUCT BUYERS IN CORN AND SOYBEANS.

And so, other than a few speculators who will still be hooked on the “tight supplies” or “when China buys” sort of story…and therefore think they are buying a bull market “retracement,” I think the odds are high that we really are into a STRAIGHT DOWN COMMODITY COLLAPSE, in both Corn and Soybeans, that WILL take them both down at least 35% from their highs…

And so yes, these are just my opinions, and I may be dead, dead wrong (which can mean losing every dollar you invest) but I CONTINUE TO AGGRESSIVELY SHORT BOTH CORN AND SOYBEANS.

 Here are the charts…and my recommendations and expectations…

For starters, Cotton is a great example of how big these FORMER bull markets can fail…from the standpoint of how big the percentage declines can be (37%)…and how fast they can do it (8 weeks)…AND to remind traders, and especially farmers, that just because a market has zoomed up to extraordinary heights, with all sorts of rabidly bullish stories that supposedly support the idea of even higher prices, IT IS HIGHLY IMPORTANT TO REMEMBER, THAT OVER AND OVER AND OVER, BULL MARKETS QUITE OFTEN DO GO ALL THE WAY BACK DOWN TO WHERE THEY STARTED FROM…that when they are sitting there on their highs, like $8.00 Corn or $17.00 Soybeans, they can, and often do, go back down to where they were 12-18 months earlier…And as they are doing that, you will be hearing analyst after analyst STILL talking the bullish “story,” and still recommending looking at the buy side.

CORN

I am still positioning on the short side in September as I believe Corn is SERIOUSLY ON THE MOVE...which is normal for this time of year, right into mid-August or early September...Doesn't mean it will happen here but Corn has a long history of STRAIGHT DOWN COLLAPSES, as farmers who have been listening to all the bullish talk, and NOT selling...NATIONWIDE...become PANIC SELLERS…

Or do it this way…

WHEAT

THE SOYBEAN COMPLEX

Soybean Oil

SOYBEANS…

This is where I am currently the most aggressively short…as, compared to the percentage moves we’ve already seen in the other row crops (25%-37%), my view is that Soybeans, only down about 17-18%, due to their later crop development, are only just getting started on the downside…

If you are on this with me, do know that I am still adding to short positions…And if you are not already on this, and agree with my perspective, I urge you to NOT think it’s too late to get in…Truth is, and I might be dead wrong, but I actually think we could see this market UNDER that big round number, $10.00, before Soybeans find their next stopping point…And if you think that sounds nuts, go take another look at the moves we’ve seen in Cotton and Wheat.

And finally, both Corn and Soybeans, I believe, have absolutely completed top formations…and are now making new 5-6 month lows…BUT I HAVE YET TO HEAR A SINGLE PEEP FROM ANY ANALYST OUT THERE ABOUT CORN OR SOYBEANS “LOOKING LIKE THEY’RE HEADING DOWN TO…” I’m sure there must be a few bears other than myself, but generally speaking, I am STILL not seeing ANY references to lower price targets…and if you know anything about trading, I’d remind you that if these markets were stopping here, instead of just about every analyst I see talking about “when the market turns higher,” you’d hear them all expressing the same bearish perspective that I have…And really, that is NOT what they are all saying…

A New Recommendation

 BUY THE CATTLE COMPLEX

I look for a giant rally, from right here, right now.

I know that virtually every farmer, cattleman, or trader will look at that opinion, and just think, “This guy is dumb as a post.” And I say that because the current conventional “wisdom” is that EVERYTHING OUT THERE suggests that there is no way for beef prices to go up from here, with their wrong way “logic” being as follows:

One – Feeder Cattle are fed Corn and Soybean Meal, and even though both of those markets are now in decline, the overwhelmingly bullish opinion about their prices is STILL out there…And without getting too detailed, if the cost of feed for a 700 pound steer that you buy to “fatten out” in feedlot for 4-5 months is sky high, according to ALL the opinion out there, and probably staying that way or getting worse, how would anybody expect to see prices/demand for Feeder Cattle being going higher? I mean, with those high feed costs, buying Feeders just sounds like a great way to just lose money.

Two – Loosely stated, with the recession coming (it’s already here…but, I believe, already behind us), and energy and food inflation killing the consumer, how can they possibly afford to hit a restaurant or buy anything other than hamburger at the supermarket? In other words, the demand for beef just can’t be good…and therefore will not support higher prices.

Three – With the screaming Dollar, at 20 year highs, anything bought here from abroad has become dramatically more expensive…meaning that the high Dollar will certainly have a negative impact on export demand.

So okay…ALL of the above represent 3 big reasons why pretty much every analyst out there is going to say, “DON’T buy Cattle,” but do understand that these are the same people that have been screaming, “Buy the row crops.”

My view?

One - Corn and Soybean prices are in a free fall, and commensurate with those prices falling, meaning it gets cheaper and cheaper to feed that cow, you are going to see more and more demand for Feeders. Period.

Two – Very briefly, Wall Street is screaming “Recession!” like it’s the end of the world, when I believe the GDP contraction we’re experiencing is a brief slow down, primarily due to the fact that…and this is very much of an oversimplification…six months ago, retailers, dreadfully fearful of supply chain disruptions and inflation, were in panic buying mode, buying FAR out into the future AND doubling up on their orders…and are NOW sitting on EXTRA inventory that isn’t moving fast enough…thus leading to a decline in new orders and activity at the industrial level…thereby dragging GDP lower…And again that IS one oversimplified example of how LAST YEAR’S ANGST is having an effect right now…But on the flip side, I will say that job growth is only trending higher, that wages are as well, that 3.6% unemployment is NOT indicative of a weak economy, and that ANY slowdown, in virtually any industry, is nothing but a pause after enormous activity…whether it’s in construction, technology, services or whatever…

And beyond all that, the fact that the roads, the malls, the stadiums, AND the restaurants are jampacked wherever you go indicates that THE AMERICAN CONSUMER IS ALIVE AND WELL…AND SPENDING. For sure, there are people who are hurting, primarily due to food and energy inflation, but I maintain that the pain there is OVER…that INFLATION HAS PEAKED…the bottom line being, I regard the idea that Cattle prices can’t rise because the consumer won’t buy beef or dine out as logical sounding “bunk.”

Three – Analysts might say that the Dollar will restrict exports…but I’ll argue that as the United States imports more beef than it exports (and those exports are a small percentage of total production), whatever the Dollar does has a negligible, potentially non-existent effect on our domestic Cattle prices.

And finally…The Cattle market has basically been sideways for the past year…meaning, to me, that it is READY to do something. I’ll also say that decades ago I noticed that the Cattle Complex tended to move somewhat opposite of the other agricultural markets…which can be most recently noted that with all these other markets screaming on the upside, Cattle have just been laying there…BUT…I absolutely think that is beginning to change.

I THINK CATTLE, BEGINNING WITH THE FEEDERS, ARE A ROARING BUY.

And after basically doing nothing for a year…swinging in a 15-20 cent range…to knock out 25-30 cents on the upside, in my opinion, would be EASY.

Give me a call if anything here interests you…

Thanks,

Bill

770-425-7241

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: Corn, Soybeans, Soybean Oil, Feeder Cattle