"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


Friday, May 9, 2014

USDA Report Day

It finally arrived. USDA gave us their Supply/Demand numbers this morning as well as the Planted/Harvested estimates. The grains and beans wasted no time careening wildly as soon as the numbers hit.

Old crop beans were the beneficiaries of another cut in ending stocks to 130 million bushels. However, new crop carryover was raised to a whopping 330 million bushels. USDA raised expected global production from 283.79 million metric tons for 2013-2014 to 299.82 million metric tons for the 14-15 production period. They are penciling in another huge Brazilian crop. Between expected bean production both here in the US and in S. America, the tightness in soybean supplies looks to be winding down. The higher prices have worked their magic by increasing acreage heading to beans.

Total bean production for this coming year is expected to be 3.635 billion bushels - that is just huge. USDA is projecting a yield of 45.2 bushels per acre compared to last year's 43.3.

Crush is to be raised to 1.72 billion bushels from 1.695 billion. Exports are anticipated to increase to 1.625 billion bushels from 1.600 billion.

The big increase in expected acreage and decent yields will leave carryover at plentiful levels.

Corn carryover for 2014-2015 is expected to come in a 1.726 billion bushels, up from 1.146 billion for 13-14. USDA is projecting a yield of 165.3 bushels/acre up from last year's 158.8. The end result is another record corn crop of some 13.935 billion bushels compared to last year's 13.925 billion. That number caught a lot of traders by surprise.

USDA cut exports from 1.9 billion bushels to 1.7 billion bushels Feed usage was cut from 5.3 billion bushels to 5.25 billion.

Global corn production is not expected to increase much as USDA sees 2014-2015 coming in at 979.08 million metric tons, up from 979.02 million metric tons in the 2013-2014 period.

US corn acreage is expected at 91.69 million acres, down from 95.36 million last year. Bean acreage is expected to jump to 81.49 million acres from last year's 76.53 million. That could change even more yet if corn planting is delayed. That does not look to be the case however as the weather forecasts are showing a decent planting window next week for now.

That nearly 5 million acre increase in beans from last year is what the USDA is focusing on and counting on to ramp up the carryover. Traders are aware of the current tight stocks situation but that looks like it is going to fade in importance as S. American cargoes make their way here, not to mention Canadian shipments. Everything now depends on the growing weather for this upcoming season. Hopefully farmers will get some good weather and some nice crop yields.

Wheat planted acreage is expected slightly higher this year at 56.16 million acres compared to last year's 55.82 million.

USDA did cut wheat carryover for 14-15 down to 540 million bushels from the current 583 million bushels. They lowered expected global production to 697 million metric tons, which is down rather significantly from the 2013-2014 season's 714 million metric tons. The bulk of that cut is coming from Canada with Australia's expected production also contributing somewhat to the smaller number as that was lowered by 1.5 million metric tons. I am not quite sure what is behind the sharp drop in expected Canadian wheat production of some 9 million metric tons at this point. I will see what I can find out.

I want to see how the dust settles in the grains before reading too much into the market price movement right now. These USDA reports are notorious for engendering wild swings in price during the session but the key to me will be how they close today. Right now corn is getting beaten with an ugly stick, especially new crop. There are a boat load of hedge funds sitting on the long side of the corn market so this reaction in price needs to be closely monitored.

Hog producers - keep a close eye on this corn move because you might be able to start securing some feed coverage in addition to some hedge coverage of expected 4th quarter production. I keep saying this but you have incredible, once in a lifetime type profits with 4th quarter hogs and now that corn is moving lower, the opportunity is increasing. Be careful not to let your emotions guide you but do your math, check your margins and secure at least some partial coverage.

Shifting over to gold for the moment -

Once again gold bulls dodged a bullet as that market shifted focus back onto the events in Ukraine. Russian President Putin seemed to make an effort to ease tensions there yesterday but some elements of the Pro-Russian ( Separatists ) apparently are intent on holding that election later this month. Just today, Ukranian police and security forces announced that they had killed 20 separatists in some fairly severe fighting in the eastern provinces. That obviously does nothing to de-escalate the situation.

It is almost as if the gold bulls have some "friends" over in the Ukraine who fire off some bullets whenever the market begins to sink into an important chart support level. It seems to spook traders just enough to keep them from pressing it on the downside and back up it floats. I am obviously being facetious here but the main point is that this Ukraine mess is muddying the waters when it comes to gold for the time being and is a wild card that needs to be accounted for when ascertaining what is behind the various swings in price. Personally I hate trading geopolitically motivated market movements because they creating way too much uncertainty and confusion. Most of us traders prefer more well-behaved markets ( those can at times be hard to find ).

Either way, traders are once again covering some shorts ahead of the weekend, just in case. That seems to be the pattern that is developing now on Fridays. As long as the market is unsure of how things over there are going to play out, gold is continuing to hold above chart support levels.

That being said, the gold miners, based on the HUI chart, are acting heavy. That index is perched right above a key chart support level between 215 - 218. They are not collapsing but neither can they seem to hold rallies. With the giant ETF, GLD,  continuing to report holdings near 5 year lows, it is evident that investment demand for gold and gold-related things is waning. Traders/investors are looking past current events in Ukraine and focusing more and more it seems on the POTENTIAL for eventual rising interest rates.

That is not the case however for the bond market at the moment which has levitated higher up to around the 136 level. A combination of shaky equity market action of late, in conjunction with some safe haven related purchases, has put a surprisingly firm bid into the market. The yield on the Ten Year is sitting near 2.60%  ( 2.618) as I type these comments. That is well off the peak near 3.0% that occurred at the beginning of the year. That tells me that the market is not the least bit worried about inflation for the moment. If anything, the opposite seems true. I find that odd considering all the talk about an improving economy.

Some of this can be attributed to the Fed's forward guidance of no interest rate hikes until sometime in 2015-2016. The market is generally interpreting that to mean around a year or so from now, around the summer of next year. Subsequent economic data releases are going to be very closely scrutinized to say the least, especially the payrolls numbers each month.

Along this line, the Fed announced today that it was going to be ramping up the testing of what is called its, "deposit facility". Each Monday, beginning May 19, it is going to be running tests. According to Dow Jones, the first four tests will see it accept $10 billion in 7-day deposits from banks at interest rates of 0.26%. It will then increase the rate it pays on these deposits gradually to 0.30%.

This facility is one of the means it intends to use to drain excess liquidity from the system.

I mention this because once this process occurs, gold is going to encounter more resistance in the form of headwinds. While some can argue that the economy is too weak for the Fed to be actually draining liquidity ( in contrast to the current lessening of liquidity injections ), thus far the Fed has been rather clear about their intentions and have been making good on those. Fighting the Central Bank is not a winning proposition for investors/traders. We'll continue to monitor these developments. I do wish to repeat that DRAINING liquidity, is at this point, a way's off. We have not yet done with QE; when we do, then we can talk about the actual draining process.

I threw up a quick post of the Euro in yesterday's comments after ECB head Mario Draghi came out to "talk it down". Traders whacked it pretty hard yesterday and continued spanking it on today's session thumping it right through the first level of chart support near 1.38. Thus far it is holding near secondary support in the vicinity of 1.375, but even that looks shaky. That has sent the Dollar soaring back towards the 80 level basis USDX, which makes gold's reluctance to drop further even more interesting as it is fairly evident that Ukraine tensions are holding it up.

Currently old crop beans are being supported, new crop beans are lower, with both old crop and new crop corn lower. I am a bit leery about the strength in old crop beans given today's numbers for the upcoming season. Traders seem to be focused on that cut in old crop carryover but are apparently not taking into account further potential cuts in usage as these sky high bean prices are beginning to crimp demand.

Wheat is slightly lower but KC is holding better than Chicago. Traders are watching rain forecasts for the plains but are still hesistant to become aggressive sellers as no one is sure quite how widespread expected rainfall might be.

I will get some charts up later... it is a very busy day over here right now.


  1. good letter as usual Dan; old crop beans and corn are impossible to trade; I personally have no position but think they are both hilariously overpriced; I think we have to take Draghi at his word and fade Euro from here on out, as Brussels has given him his marching orders.

    New crop is another story entirely and with average or El Nino weater, corn and beans go much lower.

    Last but not least and on a lighter topic, poor Johnny Football, ending up in the Dogpound Mistake by the Lake Graveyard, where he will be lucky to last 10 games or so. See what happened to Griffin in Washington, and folks, this is not 1965 Fran Tarkenton and the Giants or Vikings. Have a good wknd everyone; swb

    1. Steve;

      I can see Johnny Football getting this head handed to him by a big Defensive Lineman or Linebacker saying" Welcome to the big leagues". He had better learn to slide in a hurry.

      Yuk - of all teams to have to play for the Browns...

      on the old crop beans - those guys who keep jamming them higher will do so until they have to get hit with a 2x4 upside the head with cancellations. Crush has been strong but today's report took a lot of starch out of the bulls' sails in my view. Bulls only have the tight carryover situation to hand their hat on now. If we get a decent growing season, they are cooked. We'll see what the weather brings because that is all we are going to be trading now for a while.

    2. agree on your points;have a good one, and tell your followers to beware of the Bulgarian Blaster at Zerohedge, who seems not to understand how the world works and that Casinos have to rig games in order to profit; what a sad little clown; swb

    3. If you want to compare a QB to Fran Tarkenton, use Russell Wilson, who doesn't get injured, not RG3. Cleveland is a great football town. I hope Johnny football brings the Browns back to prominence. Anyway, always good to talk about Football.

    4. Bobbo, Fran played for a few more years than Wilson, and I never quite understood how certain cities were considered great towns for whatever sports; swb

    5. Steve,

      Nobody has profited more handsomely than Tyler Durden from selling fear to Wall Street.

      5 years into the Greatest Secular Bull Market in recent history and he's been screeching doom and gloom the entire time, and many hedge funds and gold bugs are continually sucked into the black vortex of fear and look how much money they lost.

      And check out the ads on Zero Hedge now, hundreds of clicks per day, Durden is likely a millionaire now, and with no end in sight.

      Because no matter how good things get, there is always a market for:

      "Any Minute Now, I Swear!!! Things Are Gonna Blow Sky High!"

      "This is It!!!"


    6. Steve, Great sports towns usually have rabid fans, good attendance, win or lose. Miami, not a great sports town, people rather be at the beach.LA. isn't a great sports town, people go to their games to see celebrities. Celebrities go to be seen. Watched Tarkenton play, as I am a Giants fan. Wilson is Tarkenton, only with a better arm, an a championship. I know he has only played a couple of years, but he's smart, and some guys know how to roll when they get hit.

    7. That's the problem with big $ high draft coice QBs and RBs. That can only be as good as the OLine. On a last place team that's not very good.

  2. Well, here we go. Dollar rallying, CRB Index tanking, XRT showing relative strength on NYSE as the consumer once again is rescued by deflationary forces in commodities.

    "Frightening Endgame" and "Tragic Day of Reckoning" fast approaching for the gold and silver mining industry, as the U.S. Dollar is rocketing higher and TRX and MUX plunge to new lows for the move.

    GDX/GLD Ratio getting absolutely destroyed.

    1. Hey buy some TRX and see how that production by September will work out for you.

      Looking at Jims trackrecord of predicting rising goldprices at each and every top over the last 3 year, I fully expect TRX to be flirting with 1 dollar shareprice by the september non production post expiration of the august warrants date.

      But Jim will find some other way to generate the cash he needs to pay himself a quarter million, the corporate secretary 200k and the CFO 550 thousand dollar for the year.

    2. Not the only miner grossly overpaying. Haven't seen a compensation plan that is shareholder friendly yet.

  3. Dan, if the clueless Fed starts draining liquidity it will cause this economy to fall off a cliff... the labor participation rate will drop into the 50% range based on its current trend. The Fed withdrawing liquidity will only fuel that trend. Here's an article from zerohedge indicating that we maybe all ready in a recession

    1. Mad Max;

      with all due respect, why do you even waste your time reading the sensationalized drivel that continually comes out of that site? Name an instance where any of that junk has helped a single investor make a dime in the last three years? Fear sells, always has. And that is not even bringing up the lost opportunity cost of being out of some very productive investments over those last three years while they were busy over there terrifying their readers.

      You know I am not a fan of Central Bankers if you have read this site or any of my other writings at all. That being said, these same sites have told us the world was going to come to an abrupt end if they even dared to taper a measly $10 billion. Look at where we are now - how many cuts have they already done to that last round of QE? Has the world ended yet? No, it has not.

      Do yourself a favor - stop reading that crap over there and try to be objective and look at the broader market action instead of the various gloom and doom sites.

      I understand that the economy here is not growing all that rapidly but I am more interested in the what the bond markets are telling me than the proprietor of some constant fear mongering web site.

      Bonds are showing some signs of slowdowns and that is worth more than anything else that you can read there or even here for that matter. Again, learn to read what the markets are saying my friend.

      good success to you.

    2. Dan I have actually picked up legitimate news on zerohedge hours or even days before it was picked up by MSM. And yes I have been able to actually benefit on trades from time to time based on news and analysis from that site. Like you, I disregard the sensationalism in making my trading and investment decisions and appreciate the insights and analysis you provide here. Zerohedge also has provided interesting points of view. I have always believed that a mind is like a parachute...it works best when its open. Ones writing style sometimes can be a turn off...but generally I'm am able to look under the glossy or even sensational surface and can find if there is anything of substance. That said, like your analysis, many times the analysis on zerohedge has ultimately turned out to be correct over the years...not all the time. good success to you as well

  4. Another World Record Close on the Dow Jones Industrials.

    NY Composite not far away.

    Stay in the System.

  5. opening weekend comments - er i mean i just opened my first Bier...

    Green Bay Wisconsin is the best football town in the USA. i believe a big part of that is that the Packers get us a quarter way through the winter most years, often enough almost half (superbowls). we have beaches on Lake Michigan, but you have to wait until August 15th to go in the water, unless you have an insulated wetsuit. we have celebrities here also, but they don't last. once they start trash talking, they are welcomed to leave - sorry, that means you Kareem, Favre, and Radar (O'Riley) :-) Wisco likes its heroes unsung.

    as to Jim Sinclair... if i saw both Dimon and Sinclair wearing fake antlers in the woods during deer season, i'm not sure who i'd accidentally shoot first.

    i think the FED has no choice any more but to keep talking their game. let them continue to pretend they can control the monster they have created. i do believe in this Belgium conspiracy - or something. i cannot fathom how bonds and stocks both have been busting records in this crap economy. and it is truly crappy. just look out the window, and while your at it call a few friends in other states, and ask them about the view from there.

    as to gold, many of us were fools. the bankers and their paid stooges in government aren't going to give up the privilege of printing money without a fight. this can and will drag out longer than many of us have left TO LIVE!
    it does not help one bit that the average Joe in the USA can't even balance a checkbook. so the fundamental reasons to owning metals are meaningless to the financially illiterate anyway.

    my first ramble over here just to test the waters. i hope you all don't have an irrational fear of communists. :-)

  6. This comment has been removed by the author.

  7. I agree Green Bay is a great football town. A lot of cheese heads around. But when they come to Giants stadium could they please take those things off their head, so I can see. Also, I vote for Dimon!

  8. i agree that wearing a cheese head hat inside a stadium is rude. the only excuse for it i'll accept is that they have a R value of 40+, making them almost like survival gear for post season games on the Tundra. the trick is also to use your spare cheesehead as your seat cushion, so that your height exceeds that of the guy freezing his ass off in front of you. :-)


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