August 5, 2019
This past weekend, the Chinese government asked its state-owned
enterprises to suspend purchases of U.S. agricultural products.
The Chinese are the world’s biggest importer of Soybeans so I don’t think you can get any news that would have any greater bearish implications than this. Even so, with stocks tumbling and fears growing that Trump’s Trade War is going to topple the world economy, after starting sharply lower this morning, Soybean Meal futures have recovered and are now trading higher on the day.
It’s not the same but I would liken today’s agricultural markets to stocks and the economy back in the spring of 2009, when the Dow had fallen over 50% during the previous 18 months…and fears of a “systemic financial collapse” were actually being cited as a very distinct possibility. In other words, at that point, a reversal back up in stocks and the economy looked HOPELESS…which obviously was not the case…And in reality, precisely then, when jobs were being lost monthly by the 100’s of 1000’s, and GDP had recently fallen by -8.4%, and stocks were sinking day after day after day, and when all of the news was so horrible….WAS when you were supposed to be buying the stock market…
And that is where I think we now are in agricultural products…Trump’s ill advised trade war is now about 18 months old…and quite honestly, as regards ag prices, after Trump’s last surprise tariff increase last week, followed by China’s response to SUSPEND buying of U.S agricultural products, I do believe any idea of a bull market in Corn, Wheat and Soybeans has reached the same relatively HOPELESS stage that we saw regarding stocks in March, 2009.
I continue to believe that all of the negative aspects of the trade war have now been factored into the markets, and that with the final official statement to “suspend purchases,” there is nothing left to drive prices any lower…that anyone who would sell at these current low levels HAS sold…and therefore, I CONTINUE TO RECOMMEND BUYING THE SOYBEAN COMPLEX AND I CONTINUE TO FOCUS ON THE SOYBEAN MEAL CONTRACT.
As I have noted before, to succeed in this business, I firmly believe that you DO have to be willing to take positions that go dead opposite of what the media “logic” might be suggesting…that in particular, I don’t think I have EVER seen a bottom where there was anything but bearish news all over the media.
Every time I look at the long term chart, I am reminded that $75-$100 moves have been a routine occurrence in Soybean Meal, and with this in mind, I definitely see the $400 level as a potential target.
Obviously, these are my own opinions and I might be dead wrong…and especially so if we do trade dead sideways for the next 5 months…in which case both of these options would then be totally worthless.
The truth is, as I cannot imagine that Donald Trump can possibly allow the trade war….which is impacting farmers more than anyone else in the country…to extend into the 2020 election year, I do look for some sort of face saving China-USA compromise in the relatively near future. And with this in mind, I therefore firmly believe that the Ags (Soybean Complex, Corn, Wheat, Cotton, Cattle and Hogs) should all be approached from the long side at current levels…with expectations of bull markets in potentially all of them, extending out, minimally, into mid 2020.
Give me a call if you want to talk about this…
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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