"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput

Trader Dan's free work will soon be available at www.traderdan.biz

Monday, September 30, 2013

USDA Surprises Corn and Bean Markets

The USDA released one of those famous Grain Stocks reports this morning and it immediately sent the corn and bean markets into a royal tizzy.

Analysts were way off on their projections of both old crop corn stocks and soybean stocks. By that, they were well below the actual numbers that the USDA gave us.

Apparently, the analysts failed to understand that the best cure for high prices is high prices. The simple truth is that the US has lost some market share because of the stubbornly high prices for both corn and beans in front of what is expected to be a record corn crop and the 4th largest soybean crop in history. Many farmers are being ill served by some advisory firms who refuse to accept the fact that the psychology of buyers in the grain markets have changed from the last two years.

If that were not enough, S. American supplies of both corn and beans are abundant and with planting season kicking off down there this month, there is every reason to expect large intentions in the Southern Hemisphere. Obviously weather down that way will play a major role in overall production but early indications ( and common sense for that matter) indicate a desire to plant a large amount of acreage and take advantage of the relatively high prices that the board is still offering producers.

End users of grain and beans are not foolish and unless they need the grain right away, are obviously trying to wait for more plentiful supplies to flow into the pipeline as the combines begin to roll in a big way this week.

This surprisingly bearish news for corn and beans was tempered a bit by the Wheat news  which was mixed. Ending stockpiles came in BELOW the estimates but the current year crop production is expected to be slightly larger than estimates. That is leading to choppy trading in that market for the time being.

If that were not enough, the hog market got hit with a wicked curve ball from USDA with the Quarterly Snout Count in the form of a big bearish surprise.

Were it not for the stubbornly bullish sentiment in the hog market due to the PED virus, hogs would be much lower than they are trading in today's session.

I bring up these things to point out that the futures market is signaling lower corn and soybean prices and perhaps a peak in pork prices for the short term. This will eventually feed through the pipeline and impact FOOD prices DOWNWARDLY. In other words, both reports are not signaling any inflation from this sector for a while. (Beef is still a wildcard as supplies of cattle will be tight but the question is whether or not consumers are going to pay the kind of money for beef that will be required to keep prices elevated).

With crude oil weakening as the lackluster economy stifles demand for energy, both food and energy prices are seeing some downward price pressure. That undercuts the inflation argument considerably, especially with the stagnant job market contributing to stagnant wages.

We are seeing this reflected in gold this morning which ran up to $1350 overnight only to be met with a barrage of selling. Traders/investors are not going to chase gold prices higher unless they have clear evidence of rising prices across the economy. Right now, they are not getting that unless of course one looks at the result of that abomination known as Obamacare on the premiums of health insurance policies all across the land.

There is still dip buying occurring in the gold market but that in and of itself is insufficient to take the market strongly higher and KEEP IT THERE. Gold still needs a spark, a catalyst of some sort and right now it is hard to envision what that might be.

As usual, the hedge funds hold the fortunes of gold and silver in their hands. Their next move is anyone's guess. Further clouding the picture today is that it is both the end of the month and the end of the quarter and there is a large amount of positioning and book squaring occurring which is making reading price movements quite difficult.


  1. good analysis Dan; lots of folks apparently think beans in the teens are normal . As for gold, silver, same old same old. And as a warning for some of your readers who pay attention to Armstrong, apparently his appeal is to brand new entrants to the mkts, as I caught him with a huge incorrect factual mis-statement of the '98 LTCM, Russian, Asian fiasco and his claim that the Yen went from 147 to 103 in days! What a charlatan! Still waiting for his reply to my e mail, swb in sparks

    1. Yes, the information that Armstrong stated (yen/dollar moving from 147 to 103) was likely over 18 months (1998 to mid-1999) not days. He needs a good editor. But his ideas are sound and the guy knows his stuff. You can learn a lot from him if you can overlook his poor grammar and occasional errors (that was one of the first that I've seen).

  2. Dan, Starbucks has already admitted that the coffee cost of a cup of coffee is only 3%. So there is such a disconnect between the 2 that it is shocking. Even a big disconnect between the cost of cattle and the retail price of meat. So I assume that same disconnect happens with the grains and all other commodities. If its not passed on to the consumer, only the producers get hurt.

    1. arnie; coffee and tennis shoes r nothing but a joke and a testimony to marketing to stupid American donkeys; swb in sparks

    2. Steve

      The stupidity of the American Consumer is mind boggling.

    3. Funny you guys would bring this up. I was just thinking about this this morning.
      I'm a cabinet builder, do lots of kitchens and see lots of people buy $4k - $8k cook stoves, or more! You can buy a really good one for about $1500.00. Six burners, griddle, excellent performance.
      There both just damn steel boxes, one stainless the other porcelain finish.
      They'll both last 20-40 years. But both will look about the same, pretty damn used.

  3. http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/9/30_This_Will_Create_A_Horrific_Collapse_That_Will_Shock_The_World.html

    1. These headlines have been playing for years now.
      It is probably going to be true someday but don't hold your breath.

    2. michael, I find this one more interesting.
      "How does it end? China simply defaults on any outstanding paper contracts. The answer as to when they might do that is when there are no significant existing holdings to be acquired. We appear to be getting very close to that moment with the dramatic reduction of above ground supplies throughout the Western central bank vaults.'..."Having the reserve currency status is a huge advantage. Faced with the choice between allowing the Chinese to acquire 10,000 tons of gold that could very well dethrone the dollar longer-term and an immediate dethroning if U.S. treasuries were unloaded, one can see the Fed choosing the option that buys more time. Strategically, the U.S. avoids an immediate collapse of the dollar and the loss of reserve currency status. The Chinese get cheap gold, but this means that the dollar won’t be dethroned, at least for now."

  4. Farming in un-regulated markets has never been too profitable. People never change. One good year, and they think that everything is going to be roses, and sunshine for eternity.

  5. Just as Dan has posited there are many variables "making reading prices movements quite difficult", Jesse also attempts to focus on the increasingly flimsy coin of the realm: http://jessescrossroadscafe.blogspot.com/2013/09/nav-premiums-of-certain-precious-metal_30.html
    Excerpt (excludes tables): "30 SEPTEMBER 2013
    NAV Premiums of Certain Precious Metal Trusts and Funds

    As a reminder, today is the last day of the non-active September precious metals delivery month.

    And besides the US budget funding showdown tomorrow, there is a non-Farm Payrolls report due out on Friday, if the government does not shutdown."

  6. The usual drama
    There is no way they will shut down.
    Probably a good time to go long DOW.
    Tonight they will come to a compromise and tomorrow US equities will go wild.
    Note that the consumer discretionary XLY and XRT hardly budge no matter what the news.
    Bullet proof

    1. Question is which direction will gold go. Likely no matter the outcome, down for now?! Might as well.

    2. Hey Prophet
      I'm with you on that, no matter what the news...it is now always gold negative...almost like a permanent rule or axiom.

  7. The only way to beat these guys is to take the infinite dollars we get through our labor, and buy the FINITE amount of gold. once the physical is in your hands, no one can manipulate it from you unless you let them.

    The Exchange Stabilization Fund can take from whomever it wishes as it has INFINITE resources backed by the good faith and credit of the United States Treasury, and the Federal Reserve. If they want ANY commodity (commodities/stocks/bonds) to move in a direction, they can make it happen. They will look out for whats in the best interest of the many, or the few, depending on the current goal. If the goal is for votes, they manipulate in favor of the many (stocks/bonds/real estate). When they want to favor the few... the levelings happen (lehman/bear sterns/wa mu/...bailout GS, JPM, WF, BofA)... It is a fool's errand to figure it out. You are lucky or you are not, OR YOU HAVE FRIENDS THAT ARE MAKING THE CALLS. That is why so many are having a time of making sense of this. It is meant to confuse, then take. Buy physical. Sit tight. Take care of your faith, family, and friends, and pray hard for discernment.

    1. That is well written and insightful, and true.

    2. Thanks, Arnie. I am starting to review historical documents. But I didn't realize the issues we are having now are IDENTICAL to the issues faced in 1934. The only thing that has changed are the players. And the talk of Gold Standard.

  8. BTW, the ESF is not all bad. It serves its purpose on the world stage as it was intended. Just don't be part of the carnage.... when the tornado comes through, you get out of Dodge.

  9. How about Fukushima? Getting worse by the day. What happens when most of Japan becomes uninhabitable and the US west coast is in total panic. The time for portable wealth that can't be debased has arrived.

  10. Based on the current stance on the daily chart (*with my amateur perspective)...who else thinks gold and silver is ready to jump higher very soon...not many I bet?! :-)

  11. I would suspect the ESF will be buying enormous amounts of dollars tomorrow, and bonds, and stocks...

  12. Look for SMALL "V" recoveries in each when the algos kick in.

  13. can it be that easy to knock gold down on nothing?

    1. @arnie : YES!
      If noone is there to buy it back on the paper side.

      For the readers who are here because they hope to find a better estimation for gold's direction, bottom, timing, etc... than on perma bull websites, I will give my humble warning.
      On the long-term, which is probably what you are interested at, you have to consider time units as long as Quarterly time units.

      On a pure technical point of view, on this time unit, I see that we had a huge bad marubozu in Q2, followed by an uptrend correction which didn't hold above the middle of the body of the Marubozu (1412). It looks like a "ligne de poussee", which is weak.
      The top we made around 1430 $ represents a mere 38% Fibonacci retracement of the last one way move from 1805 to 1180.

      If I watch the Bollinger Bands on this time unit, the lower Bollinger Bands are going up but are only at around 850 $.
      So, theoritically, it is absolutely possible, techincally speaking, to see gold prices crach down to 850 $ and bump from there.
      850 $ would be my minimum extreme target for gold.

      If you take into account a chart of the 12 last years of price action in a quarterly time unit, this doesn't even look terrible. Look at Oil prices a few years ago when they crached back down to 30 $...

      So, consider 1000 $ as a real possibility and handle the position that you can handle at the moment with that possibility in mind.

      I'm not saying that to discourage you or to make you sell.
      I'm saying that to make sure you are ready to stand the heat, because the Bears are counting on your emotions in a panic to create capitulation and collapse.
      If your position is too big to handle a collapse to 1000 $, maybe just sell some of it now that you are still at 1300 $+, and then forget about it and stop eating your fingernails / watching gold prices every day.

    2. good advice, Hubert Du Haut!

    3. good points, Hubert. also, kudos to preditor 1976 for bearish call; steve in sparks

  14. The second leg of the Triple Waterfall Crash has just now commenced.

    The shutdown will immediately start erasing the deficits and bring forced austerity our bloated government.

    This will trigger one of the greatest economic booms of all time, and the added tax revenues will contributing to a gradual decline in our government debt, the first time ever.

    Stay in the system.

    Ignore the gloomers and enjoy life.

  15. Going down
    This will probably be the big gold washout.
    I am surprised at how complacent the stock market is....of course it is back stopped by the FED, that is all you need to know.

  16. there is more than enough gold to drop it to 1000. never forget this. Miners will add more hedges today, too... Look at this as a good thing. If one is careful he can add a lot of gold by weight to his holdings.

    I had 60% of my physical hedged while I took a dump and made coffee. I came back and gold was down 30. A blown opportunity, though trading is in the green. The globalists want us in paper. Hedge all gold and when it hits 1000 take your paper profits and buy more.

    I didn't have my stops in. Just as well. I can imagine my executions on the market stops this morning. This movement is done on purpose to blow traders out of the water and to get terrible executions.

    I trade from the short side. Learn to root for lower prices. They are coming, so position oneself accordingly, and when they come you can get excited.

    1. Eph, maybe you can explain the physical and paper gold thing to me since you brought it up. Your physical is worth about 1300 today correct? It's not much different than spot price, maybe a bit of a premium because of storage and delivery. If gold hits $1000, no one will pay you $1300 for you physical, correct? Also this talk of GLD being trained of physical, well that's cause there is no demand for it so inventory is kept low, I think inventory was highest in 2011 when gold was hitting 1900 because there was high demand. I think I read that on this blog. So what gives???

  17. There is no difference. If I am short two contracts, that is about 60% hedged. If I am 4 contracts short that is enough to profit and pay the cap gains taxes. On days like this that are paint the tape. i am short 5 contracts. two are in and out scalps, since intraday volatility is extreme.

    I am banking on lower prices. I actually profit with prices dropping, even with my physical holdings.


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