September 17, 2013
Corn, Wheat, Soybeans
Notes to myself…
and then you.
Usually, when I put a newsletter together, as I know most people do not want to read page after page of, “I think this and I think that”, I try to stick to two or three points I believe to be of the greatest importance. The truth is, though, I generally have a lot more in my head than makes it into the newsletter, some of which are facts, some which are just impressions, feelings, gut instincts, previous experience, etc…What follows, therefore, is collection some of that other information, most of which I threw down yesterday in a summary written to myself concerning what I believe to be the future of Corn, Wheat and Soybeans, both immediately, and for the coming year.
Assuredly, some of this will be somewhat disjointed as these are basically random notes I was making…
I don’t think I could be more bearish than I am now…I think the bearish “reckoning” in the agricultural markets, that hasn’t come for several years, is going to devastate the Corn, Wheat and Soybean markets in coming months. There has been NO recession in the ag world…And if there has been a bubble anywhere in recent years, this is exactly where it has been taking place. Life has been WONDERFUL down on the farm…and I absolutely believe it is time for the cycle to turn in the other direction.
I need to keep pounding away trying to get people Short All Three because I think the timing is immediate in all three markets…I believe we are in a period where these three markets CAN get crushed…where prices return to levels currently thought not possible…Why? Because I have seen it happen too many times, in ALL the markets, where Very High Prices (and expectations) can seemingly overnight turn into Very Low Prices.
The commodity markets, especially the ags, are continually shifting between, “There ‘s not enough to go around!”, and , “How in the hell will we ever use it all?”. At both extremes, the crowd always thinks whatever has been happening, WILL keep happening. But it doesn’t . Bull markets inevitably turn into bear markets…and vice versa.
The last few growing seasons for Corn and Soybeans seem to have been characterized by non- stop weather worries and super-demand stories…Such that we arrived at each September the past two years (2011-2012) with the bullish hype sky high…then watched the news go quiet while the markets turned sharply lower in September…The set up? All the buying had been scared into buying far into the future, and then we were left with nothing but producers sitting on mountains of grain…And no buyers and any degree of selling can rapidly push a market off a 3-4 week cliff…which is probably what happened in both markets the past few years…
The pictures tell the story…and on those high ticks…there was not a bear anywhere to be found…
Pretty big straight down moves…As always, nobody rings a bell at the tops and says, “It’s OVER. Get Short”. At the top tick of every one of those markets, the news, I promise you, was NOTHING but bullish. NOBODY WAS LOOKING FOR $2-$3 CRAP OUTS…WHICH IS EXACTLY HOW I WOULD DESCRIBE THE CURRENT SITUATION.
Again, the hype forces all the buyers to buy everything they need for the coming year (believing they won’t be able to get what they need…or that it will just cost more and more), while sellers are holding onto every bushel, fully certain they can get a better price if they just wait a while longer…But, eventually, they DO have to start selling as crops come out of the field…which is exactly what happens…and in spite of all that Bullish chatter going on, all that massive selling meets virtually no buyers and the result can be a vacuum like those seen above…and prices just fall as straight down as anything ever does in this business.
Immediately speaking, there IS no shortage for the next few months…nor is there any real potential for “weather scares”. Right now, I would say that any “early frost” event would be One and Done, that is, the market would account for losses in the space of one trading session…or for that matter, half a trading session, wherein the first half is up big…and followed by a close is dead on the day’s lows.
Perhaps I am being stupid, but for the next few months, I cannot imagine what is out there to rally these markets. And with maybe only 20% of this year’s crops already sold (farmers are still wishfully hoping for last season’s prices), that means there IS a whole mountain of crop still waiting to be marketed…that is, SOLD into the potential buying vacuum.
And on top of all that, this year’s World Corn and Soybean are projected to be RECORD LEVELS? Again, I cannot imagine what could keep these prices at current levels…
In my mind, this year’s “story” seems to be the same as we’ve had for the past few…All we’ve heard, for months, is WEATHER, WEATHER, WEATHER…BULLISH, BULLISH, BULLISH…and I think the pendulum is about to swing big in the other direction.
I have to think buyers have bought and farmers are still sitting on product, dreaming of rallies that take us somewhere closer to last year’s values…which I just don’t think is going to happen. At SOME point (like immediately), I firmly believe we are going to see an old time rout, where farmers do give up on prices and find themselves selling deep in the hole…thereby helping drive prices even lower…
I have seen the argument expressed that “Farmers are in good shape. They don’t have to sell unless prices get better”. I think this is nonsense. When you own 50,000 bushels of Soybeans, that at $14 a bushel are worth $700,000, and then you’re surprised to find them at $12 and then worth 600k, believe me, when they next become worth 550K at $11…and you are STILL waiting to sell, it DOES induce thinking something along the lines of, “Looks like they’re headed for $9.50! I need to get this stuff sold before I lose another 100 thousand!”. At the same time, like clockwork, that $11 price will be accompanied by BEARISH sentiments that had basically been nonexistent at $14…The whole package is just another chapter in this GAME, where farmers, just like speculators, have a tendency to panic when the losses beginning mounting…and finally, in desperation, dump their positions in to the worst possible moment, dead on the lows. In the markets, whether it’s stocks, bonds, futures OR an actual commodity, like soybeans for example, this sort of thing happens ALL THE TIME. Period.
I think the break is coming somewhere…in all three. Maybe at different times. Impossible to know when and which one…so be sure to be on all three.
You just have to be there, believe in the sale, be patient and hang on when (if) they start working…With Corn and Wheat already on their lows, it could be said they ALREADY are working…They already are in well defined downtrends?
In Soybeans, which recently rallied $2.50 a bushel, there is now enough price action evidence to support the idea the downturn has begun. Last week’s VERY bullish USDA report, and all the weekend talk of rain being, “too little, too late”, was blown out of the water by today’s trade to new one month lows…According to the news, seems like we should now be at $15.50 instead of $13.50. Instead, all we really got was a one day rally…which, again, appears to have already failed.
The crashes are often silent, stealthy…no big news…just shockingly lower and lower closes for 3-4 weeks…and the cumulative result can be $2 to $3 in no time at all.
Reaching the point where farmers HAVE to sell…They CANNOT store the 80% of the crop that is maybe still out there..
Lots of guys still hoping for something approaching last year’s prices…so they are STILL trying to hang on…but I think they are going to suffer mightily in coming months…The high times and high prices in agriculture for the past 2 or 3 years, just like any business, can cover some “iffy” decisions…like waiting around to market your crop, instead of using some sort of methodical approach, and being saved by the rallies that seemed to come over and over…And this is the year those rallies DON’T come again.
Talk that rain is “too little, too late” (which I have seen repeated everywhere as the latest bullish argument for beans) means the market has already written off the damage…It’s already in the market. If this market WAS going on weather damage, it would be doing it now…not making new monthly lows.
I need to continue trying to get people short all three markets…Buying puts in all three…Firmly believe this is going to be a solidly bearish year going all the way out to next summer…This is the year this stuff DOESN’T come back? When they start falling (which, in reality, they already have) and just keep falling? Where, 4-5 months from now farmers are complaining, “It’s under the price of production!”.
Maybe I’m wrong. Maybe I’m too bearish but I REALLY cannot imagine ANY buyers being at all anxious about the price or availability of product. KEEP BUYING PUTS. GET SHORT. STAY SHORT. DON’T PICK ONE OF THEM. BE IN ALL THREE.
I have heard a lot of people who think “Corn doesn’t have much left on the downside”. I think it is just getting STARTED…
And one long term chart…Every time I look at this all I can think is: Just Be There and Stay there. THIS will pay. Maybe it won’t, but this is a bet I am staying on…as big as I possibly can.
I am all over these…Doesn’t mean I will be right but this is about as strong a recommendation as I ever will make…
Give me a call.
The author of this piece currently trades for his own account and has financial interest in the following derivative products mentioned within: Soybeans, Corn, Wheat