There is a recent, far more extensive newsletter (Late Year
Outlook, Nov. 11. 2008) that can be found in our Newsletter
November 19, 2008
The Cattle complex appears to be headed solidly lower, and is perhaps now beginning an acceleration towards what I think will be a target in the mid 70's. For now, we are pretty much just managing the position, taking steps to lock down our profits (buying cheap calls) but generally just trying to sit on the position and leave the door open for a full blown collapse.
Our primary focus is now to build a stronger short position in Soybeans...
I know there are a ton of commodity analysts out there looking at the large down moves that have already taken place in a number of commodities and quite logically concluding, "They MUST be a buy for some sort of upswing!", or something like, "Beans have dropped $7.00! There must be a dollar rally in here somewhere." Therefore, many of them are looking at the last month's sideways action and viewing Soybeans as making "signs of a bottom"...And I could not disagree more...
I look at Beans and say, "In the current environment, what in the hell are they still doing at $9.00?". Yes, they are probably now below what it cost to produce the crop coming out of the fields, but I cannot count the times these past 28 years when I have seen commodities selling for "below the cost of production"...And yes, they have dropped $7.00 (which none of those same analysts were even remotely predicting) but there is nothing that says they can't still be headed for the more "normal" price levels of the past 20 years, meaning, back down to the $6.00 to $7.00 range...We are in the worst financial nightmare of any of our lives...With Stocks, Real Estate and Commodities tumbling planet wide, nobody knows what anything is worth, and nobody has confidence in anything (especially government measure to turn things around) so nobody is really a willing buyer of anything...And until the all pervasive psychology of fear has been reversed (by what, I don't know), I believe prices of many commodities, especially those that are still "high" will continue to fall...
As we all know, markets tend to fall more rapidly than they go up, so in this horrific atmosphere, it would not surprise me in the least to see Soybeans $2.00 to $2.50 lower ($10,000 to $12,500 per futures contract) by the time January goes off the board...
I would also add there are probably MANY farmers who still have not sold their crop. They either "missed" the opportunity to sell at much higher levels, or they are waiting, for tax reasons, until the new year to sell what they NEED to sell, as with credit all but having disappeared, they are all now hurting for cash...And the result may be, like clockwork, they ALL end up unloading their crops dead on the lows in early 2009 as they ALL are pretty much in the boat and ALL will be selling pretty much at the same time...Let's face it...We're headed into the thick of harvest. There is no shortage of Beans...And demand? It's weak on any front you want to name.
Enough said...Except to add, as persuasive as this might seem, never forget, even though I've been "in synch" lately, I may be dead ass wrong about all of this...
Give me a call if you're interested, and have the money to RISK...and I do mean RISK.