December 3, 2024

 ELEPHANT STAMPEDE?

One of my favorite, almost comical, commodity stories occurred about 20 years ago in the Cocoa market…which had been in a 2 year rip roaring bull market…and as I remember, one morning it opened about 100-125 points higher (which was BIG then) into NEW 30 YEAR HIGHS. Checking the news, I found all sorts of press referring to, “stampeding elephants destroying the cocoa trees,” and that (paraphrased), “with supplies already tight, this is unquestionably bullish for Cocoa prices!” My immediate thought was something like, “Say what? How many elephants are we talking? 10? 50? 100?” And that, “Even if it is 100, which seems unimaginable, how could they, in an hour long ‘rampage,’ even put a tiny dent in a 5 million ton crop? How in the hell is this actually a bullish factor?” With this in mind, my immediate reaction was to view this as a bogus piece of news, that maybe a herd of elephants had actually run through some African Cocoa plantation, but that this story was a classic “news plant,” designed to create one last bullish fake out pop on the upside…before the market collapsed…which IS what happened…beginning with that very day Cocoa going from opening sharply higher to closing sharply lower. And to this day, I don’t know how many elephants there were, or what the damage was…or really, if any “stampede” actually did take place…But I do know that this day was the high in Cocoa for the next 4-5 years.

Back to the present…

And a recent newsflash that I see as the same sort of thing…

Nov 22, 2024  “US suspends Mexican cattle imports after New World Screwworm case”

Maybe this latest news that hit the Cattle market one week ago is not the same as Cocoa in 2003…and the import suspension is real, but it sure has the same situational “feel” to me…I mean, as the USA does import Feeder Cattle from Mexico, this ominous sounding announcement, “NO Cattle Imports,” potentially representing tighter cattle supply, did result in a 400 point higher opening last Monday that was followed by about an 8 cent higher weekly close for Feeders this past Friday…with “Screwworms!” being THE big story in the Cattle Complex right now…thereby presenting one more reason why seemingly nobody in that industry can imagine prices truly going DOWN from here.

Unquestionably, having screwworms get into the USA cattle herds would be a bad thing…as the worm can also be passed to humans…BUT…the fact is, what we’re talking about is ONE steer, on the Guatemalan border, and over 1000 miles from the United States, having been diagnosed with screwworms…In other words ONE animal out of Mexico’s 8 million head…and again, a LONG way from the USA…And so, yeah, while the USDA’s initial logical reaction was to suspend imports, my guess is that the restriction will temporary…and quickly rescinded…and as it relates to the markets, this story will be soon be as absolutely forgotten as those stampeding elephants…leading me to conclude that what we have potentially seen during the past week was the last bullish BOGUS gasp on the upside in both Feeders and Live Cattle.

And so, yeah, while the USDA’s initial logical reaction was to suspend cattle imports, my guess is that the restriction will temporary…and quickly rescinded…and as it relates to the markets, this story will be soon be as absolutely forgotten as those stampeding elephants…leading me to conclude that what we have potentially seen during the past week was the last bullish gasp on the upside in both Feeders and Live Cattle.

I CONTINUE TO RECOMMEND BEING SHORT BOTH FEEDER CATTLE AND LIVE CATTLE. I might be dead wrong, and if I am it can mean losing every dollar you invest, but I STILL SEE THIS TRADE AS HAVING MASSIVE PROFIT POTENTIAL.

When the gov't is suspending imports, it just feels counterintuitive to say, "I'm going short. Here. Right now!" But that IS how this stuff works...As noted before, "If it's obvious, it's obviously wrong." And the "obvious" thing is CERTAINLY to be thinking that Feeders "can't go down."

Yep. Been waiting on this…And still KNOW not to be out…as any given few days, OUT OF THE BLUE & ON NO APPARENT NEWS, can see both of these contracts down 8-10 cents and ON THE MOVE.

Great, Great Trade…Definitely some of the best leverage you ever get in this business.

Call me and get a piece of it…

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: Both of them