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September 18, 2023

 SHORT Live Cattle & Feeder Cattle!

 I’ll pretty much just leave out any specifics as to why I want to be short, right here, right now…and will just start with these two long term charts…And just say: When a market is at mindblowing price levels (which IS the Cattle market now), when it comes to “what happens next?”, opinions, and especially of the individuals who actually produce or use the commodity, never EVER imagine that it could be going back down 50, 60 or 70 percent during the following year or two…but much more often than not, THAT IS THE WAY IT HAPPENS WITH COMMODITY PRICES…over and over and over again…And I’ll say it one more time, NOBODY in that business ever sees it coming.

The scale of the recent ASTOUNDING 2 year bull market shown above hides the fact that for 50 years Cattle have forever been a straight up, then straight down sort of market... Take a minute and look back at all those "V" reversals, which appear to be quite small compared to the $1.00 move we've seen since August, 2020...But in reality, I can count roughly 35 bull moves that were followed by at least 15-25% downturns...and much more often than not, when the bull ended, THEY WENT STRAIGHT DOWN.

But you can be sure that, as regards the fundamentals of supply and demand, just about all of the cattle market “logic” you’ll find is going to argue that these current stratospheric prices make sense…and that, as I have heard more than a few times, “Because of the record low numbers, cattle are going to be good for the next few years,” which is EXACTLY the sort of logic that has been present at every top, in every commodity, I have ever seen. Or putting it another way, as I have repeatedly stated, OPINION IS NEVER EVER BEARISH AT THE TOP.

I have long viewed the Cattle Complex as routinely making more astoundingly one directional, non-stop, GIANT moves than any other market we trade.

Perhaps this is due to it being a relatively small market and therefore sometimes susceptive to large players “pushing it around,” but the truth is, it doesn’t matter. Big, crazy moves ARE the nature of these beasts…which, if you can get positioned on the right side of what is happening, and stay on it, the end result can be some extraordinarily large trading profits…It goes without saying, of course, that if you are wrong, it can lead to large losses as well.

The bottom line is  I view this unquestionably as a Get Short and Stay Short situation, which means:

Rule One - Buy Puts with decent time to expiration. If the market starts falling, resist the urge to grab quick profits. STAY Short for at least a 10% break (about 20 cents in Live Cattle and 25 cents in Feeders) before you even consider doing anything.

Rule Two – If Cattle have not collapsed by the time those options expire, DO IT AGAIN, perhaps increasing the size of your position, and then follow Rule One.

Although I might be dead wrong, my perspective is that THIS IS GOING TO HAPPEN…AND THE DECLINE WILL AT LEAST BE IN THE 15%-25% RANGE THAT HAS BEEN THE NORM IN CATTLE FOR THE PAST 50 YEARS…that this is not a question of “If” but only “when?” And while there is no way to know “when” beyond what I’d just say is basic common sense…that is where we are now…where prices here are just downright nuts…where cattle people and traders are now “dumbfounded,” where you KNOW that buying this market here would be like Financial Russian Roulette…which reminds me of what an old hand told me 40 years ago: “If it ain’t a buy, then it’s a sale.” So one thing you DON’T do here is think you’re going to get some magic signal that says, “Sell here!” You just do this NOW.

Here are some reversals of Live Cattle and Feeder Cattle going back 20 years...Note that they are frequently virtually straight down…often relentlessly so…with the majority of them taking place over a 1-3 month period.

There is nothing like them…They often turn on a dime…and when they go, THEY JUST GO…AND KEEP GOING.

I don't care how many stories are out there about tight supplies or strong demand. Wheat had the same story a year ago and dropped from $14 down to $7. Ditto Cotton, which had an incredibly bullish story last year, at $1.40, and then dropped to 70 cents…Soybeans made their highs 18 months ago, and believe me, just because they have been hanging here at $13-$15 does NOT mean they can't be at $10 a few months from now. In that vein, here are some examples of the sort of those true commodity collapses we have seen in recent years…

Histories?  I could give you more but that those should be enough to make my point…that commodity bull markets, after going to the moon, “ALWAYS” seems to follow by going totally in the tank…And believe me, NOBODY ever sees it coming…And in mind, most definitely, “the Cow has jumped OVER the moon.” SHORT THIS MARKET!

Here are some options I like here in Live Cattle and Feeder Cattle…and I’d strongly recommending buying them in “units” of one each in both markets as there are times when one part of the complex moves decidedly bigger than the other…and I have no way of ever predicting that…

Call me if you think this is worth the risk…

And btw, today Corn is making new lows for the year (almost new 2 year lows) and Soybeans, down 20 cents, are right behind I think. I CONTINUE TO RECOMMEND BEING SHORT BOTH OF THEM…AND TRULY BELIEVE WE ARE IN THE MIDST OF THE SAME SORT OF 40-50% COLLAPSE WE’VE SEEN IN SO MANY OTHER MARKETS.

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: Feeder Cattle, Live Cattle, Corn, Soybeans