"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


Tuesday, December 10, 2013

Grain Day

Lots of fireworks occurring in the grains today on the heels of a major USDA report. Currently all of the grains ( I am including beans in this category) are lower even though the numbers for corn and soybeans were initially considered supportive.

USDA lowered US stockpiles for both corn and beans based mainly on an expected increase in exports due to the lower prices we have been experiencing especially compared to last year. However, they did raise total global bean production, mainly due to an increase in Argentinian production. My reading of this report informs me that there is certainly not going to be any acute shortage of soybeans around. Usage has been strong however and that is keeping a floor beneath the market.

Expectations for beans heading into the report were for a reduction in the ending stocks; however, the number was within expectations and prices moved lower on a "buy the rumor; sell the fact" scenario.

Wheat stockpiles are growing. USDA raised the ending number by 10 million bushels above expectations catching some in the trade by surprise.

Overall the report seems to me to have taken the starch out of the recent move higher in corn and bean prices. It will take some further bullish demand news or some bullish supply side news to kick prices into any further strong rallies.

As many of you who regularly read this blog are aware, I keep a close eye on the grain markets, as well as the livestock markets, to try to get a sense of the overall direction of food prices.

Another thing I am taking away from this report - look for used farm equipment prices to get a bit of a shot in the arm from this data. The big banner money years that farmers had been seeing over the last few year years are over for a while. Corn prices are trading about 50% below their record price and while prices for both corn and beans are still good, they are no where near those historic highs. Maybe some good will come out of this in the sense that the hedge funds can stop buying up farm land in the Corn Belt and prices can bet back to more sane levels.


  1. Thank you Dan, you are selfless and usually right, I depend on your commentary, to help guide me through this new morass of trading . Steve

  2. http://www.marketwatch.com/story/more-americans-pay-50-of-their-income-in-rent-2013-12-10

    Landlords are also hiking rents, making it harder for renters to save enough money to consider buying a home. Real median rents adjusted for inflation increased by 6% nationally between 2000 and 2012, while the real median income of renters actually fell by 13% over the same period, the Harvard study found. “We are losing ground rapidly against a chronic problem that forces households to cut essential spending,” Eric Belsky, managing director of the Joint Center for Housing Studies at Harvard, said in a statement.
    Turd Furgeson may be on to something when he talks about when JPM is a major stopper during a particular expiration month. Granted, November was dismal, but December has been supportive. Maybe we could see a test of 1290's, as Dan points out. I only have a bare bones short hedge going on since we crossed 1240 the second time. It would have been nice to cover all back at thursday's spike low, but it's tough during the moment when one holds covered shorts.

    Any party that had access to last Friday's employment numbers early and traded on them, as Zerohedge pointed out, is now seriously underwater.


  3. Who would have guessed that QE programs launched en masse since 2009 would have triggered an unprecedented collapse in input costs which would benefit the consumer.

    Even with a weaker dollar vs. the Euro, prices are still falling.

    That $2.50 brownie sold at Starbucks probably cost about 25 cents in 2009. The cost of that item today is probably down to 9 cents today.

    Examples like this everywhere, producing the biggest profit margins in recent history, thus explaining the huge soaring stock prices in the consumer discretionary sector.

    Another example is Tyson Foods, which has risen from $15 to $34 as input costs have sunk to near record lows, producing more outsized profit margin gains.

    The Bernanke/Yellen Fed will be lauded as the most extraordinary in history, as massive money printing has cratered commodity prices everywhere creating an unprecedented boom for the consumer, now luxuriating in some of the lowest item costs in 10 years.

    1. Mark-you've said this before and you were not correct before. SBUX--Gross profit was 58.36% in 2010, 57.14% TTM. That's a pretty good indication that inputs have not changed (even though coffee & wages have tanked, rent is probably higher). I don't think margin expansion is what you think it is, to paraphrase the Princess Bride. Great stock though--Op cash flow more than doubled 2009-2013.

      WMT's gross profit is exactly where it was in 2009 24% and change. NFLX's gross profit down nearly 5% in the last five years!

      Where costs have decreased across the board is interest expense...companies like SBUX & AMZN paying 1/2 what they did in 2008-9 in interest. Companies like UAL (I'm still short & still profitable on it, but have a tight stop) have debt that's ballooned from 7 to 12 billion in the past 5 years, yet pay just a fraction more interest...So pity the flight attendants whose pensions are going to be the first to get whacked when interest rates eventually rise and CEOs pull a DB Cooper and parachute out the back of the 727 with a suitcase full of cash.

    2. Oh- and TSN's margins: Gross margin 8.84% 2010, 6.86% 2013. EBITDA 7.2% 2010, 5.59% 2013. Interest expense 1.22% 2010, .42% 2013 even though debt only sank from 2.5 to 2.4 billion--though debt restructured to shorter term!


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