Three Ways to Trade the Commodity Super Cycle

Shah Gilani|March 11, 2022

Commodities are hot right now, and for good reason. Oil, corn, wheat… they’re all through the roof – but they may not stay that way, especially where agricultural commodities are concerned.

For all kinds of reasons, agricultural commodities don’t always go in one direction and rarely do for long. They are often overbought, are prone to quick drops, and on top of it all we are in the middle of a super cycle. Volatility is high.

But that volatility is our friend. Within it, there are many ways to profit as long as you use the strategies I discuss in today’s Buy, Sell, or Hold.

Click the video below to watch this week’s analysis, or read the transcript below.

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03/11/2022 Buy, Sell, or Hold Transcript:

Hey everybody! Shah Gilani here, coming to you with you Friday BS.H – that’s Buy, Sell, or Hold – where I recommend what you should do with stocks you send me.

Some really cool ones today… First up (and I like where you’re going with this) are commodity-based ETFs. The first of which is corn – symbol: CORN.

Teucrium Corn (NYSE: CORN) invests in corn futures, so this is a great “straight-up” way to play corn. It has, like all commodities, gone through the roof, but it’s not a buy now. I say, if you own it lower, it’s a hold – I’m going to get to how to play that in one second.

If you own it now – and it’s trading around $26.50 – it’s a hold because CORN can go higher. Commodities are in, I think, a super cycle. But here’s the deal with CORN: it has had a tremendous run from about $14 back in 2020. It’s had a tremendous run. Now, it’s trading between $21 and $28 [on the high end]. So, if you own it, you want to ride it as best you can because CORN could go a lot higher.

If you don’t own it, you don’t want to buy it here. It’s too high. Wait and see if it comes back down to the $20/$21 range. If it comes down to that level, you can buy in, but put in a 10% or 15% stop there, then ride it up.

What I would probably do it… If I’m riding it up and I own the $20/$21 level, and CORN gets up to $26.50 or $27, I’m going to buy puts. I think CORN could go higher, so I want to hold it. But, I also want to protect myself because it is an agricultural commodity, and they tend to come down. A lot of these commodities are overbought. They’re prone to quick drops.

So, if I owned CORN lower and I held it here, I would put in, maybe, a 10% stop on the ETF itself. But, I would prefer to also buy some puts. You can buy some puts expiring on April 14 with a strike price close to where you want to buy it (maybe $21), then ride the super cycle up and down. If you buy the $21 strike price puts that expire April 14, you can probably pay 10 cents for those.

This is the way to play these ag-commodities, especially corn.

Next up is Teucrium Wheat. Yeah, wheat! Duh… Makes sense to trade corn, maybe you want to trade wheat, too?

WEAT is the symbol. Play it the same way as CORN. Right now, it’s trading around $10.05. It’s come up from about $7.50. So, to me, at around $7/$8, thereabouts, Teucrium Wheat (WEAT) is a buy. If it gets up to the $11/$12 range, you get a nice percentage gain in there. Maybe put a little stop underneath it (5%, 10%), so if it comes back down, you still end up with a profit.

But, if you own it lower and it gets up there, absolutely buy some puts. Again, I would, here, buy the April 14 expiration puts, probably with a $7 strike price. They’re trading around 5-10 cents. So, if you can pick those up and WEAT comes back down, you get a really nice windfall on those puts.

Take your profits when you get them – same thing with CORN. If you buy the puts and the ETF comes down hard and fast, take your profits.

If you think that the commodities are overpriced right now, overbought and due for some kind of correction, then buy the puts right here. But we’re talking about is playing commodities because they’re hot. The same thing goes with oil. If you want to own oil, try and find a good place to get into USO, for example. Ride it up and when it gets up high, buy some cheap puts.

That’s the way you’re going to play the commodities, because this cycle is going to continue back and forth. Doesn’t mean that they can’t go up, up, up, up, and keep going. That’s why you want to hold them.

But, if they come crashing down, that’s why you own the puts. You’ve got to have it both ways because that’s the way to play commodities. Generally speaking, this is how it’s done most of the time. But, because I think they’re in a super cycle, you want to play mostly for the long side. Just don’t give up your profits.

Next up, gold. Makes sense, right?

What I was asked about specifically was SPDR Gold, symbol: GLD.

Just like CORN and WEAT. If you’ve owned it for a little while and you don’t want to give up your profits, put a little stop on it: 5% or 10% underneath where it is now. As I’m recording, it’s trading around $186 – closer to $186.87. I would put a stop underneath it because I don’t want to give up my profits. Otherwise, I would probably try and hold it, see how high gold can go.

I don’t think it’s going to go a lot higher, though. It could, but… That’s why I’m trading it. I would buy GLD down to $165.70 if I could. And, same thing as I said with CORN and WEAT, try to ride it up. If you can ride it up to $186…

Now, I should note that GLD is not going to be as volatile as CORN and WEAT. So, you may not get a chance to buy it back down at $165.70. But, if you think that it may come back down, puts are a possibility.

Again, if you get into the commodities or GLD lower, or you got into these cyclical trades lower, and you’ve had a nice rise, make sure to protect it.

These are trading instruments, okay? Agricultural commodities, for all kinds of reasons, don’t always go in one direction and rarely do for long. So, trade them. That’s the way you trade commodities. That’s also the way you trade gold, to some degree. In the long term, I think it’s fine to have maybe 5% of your portfolio in gold. That’s a little bit anachronistic – in other words, it’s old school – but if you have that, you’re a believer in gold, then stay with that. But for me, I trade gold. It’s not a long-term hold in my portfolio.

Now on to Rio Tinto (RIO).

I got asked a few times about Rio this week… More than a few times because Rio Tinto said they’re pulling out of Russia. This is a gigantic mining company.

People, you want to own Rio Tinto. It’s going to move up and down a little bit, but you want to own it. Right now, Rio is trading around $73.22 – and it’s Thursday as I’m recording this for you, you know.

Rio has gone up recently to a high of $84 and some change, so it’s really backed off that nice little high. But I think it’s going back north towards $90 again. So, Rio Tinto is a hold for you if you already own it, especially if you own it lower. I wouldn’t sell it.

I think it’s a buy, people. I’d buy a piece right here, and I’d buy some more down to $60 – and be very happy with it for a lot of reasons. Rio is a giant mining company with tremendous revenue. It’s got a profit margin over 33%, folks. And what it does for its shareholders is it pays them huge dividends. So, you want to own this stock.

The dividend is currently north of 10% and will likely stay in the double-digits, if not in the 8-9% range. Don’t look a gift horse in the mouth. The company makes plenty of money to pay that dividend.

Rio Tinto is, to me, a long-term hold. It’s… If you don’t own it, you want to buy it. I say, buy a chunk right here. If it comes back down to around $60, because this stuff is a little volatile lately due to the war, buy more. Load up a truck, people.

But really, here at $73 and change – take a chunk and keep it.

And last but not least: Star Bulk Carriers Corp (SBLK).

We own this in one of my services, and for a good reason. You ought to own it, too.

If you’ve had it in your portfolio, it’s had a heck of a nice run. You want to hold it.

SBLK, along with all the other bulk carriers and tankers, is going up for a lot of reasons. Number one: supply chain issues. Number two: With commodities at these elevated prices and Russia trying to sell oil, wheat, and corn off-market at a discount, countries like China are going to buy them and store them in these bulk carriers. Number three: it has a tremendous dividend payout of 28%.

Don’t expect it to stay that at 28% because many carriers like this have said they’re going to use X-amount of free cash flow to pay additional dividends. I think, generally speaking, we’re talking a 12% or maybe 15% average payout. Are you kidding me? You can get 10% or more with Rio Tinto and then 12% on SBLK. You’ve got to own these.

If you don’t, it’s trading around $29.60 right now, and I would own some here. I think SBLK is going higher. It may dip a little bit to $25, or even $20. But if it does, I would buy even more for its dividend.

That’s all for this week, folks.