Perfect Harvest Weather Sends Soybeans and Corn Lower

Excellent warm, dry weather over the weekend and in the shorter term weather forecasts have combined to send soybean prices sharply lower this AM, as well as providing additional pressure to corn. Corn/Wheat spreads are reversing a bit as well as some feel US wheat prices are low enough to generate some increased export-related interest. The reason for that was some business announced with Egypt. We shall see about that however.

Selling is increasing however as harvest results thus far are coming in even better than expected in many locations. This afternoon's crop condition reports will further set the tone for the remainder of this week, assuming the weather forecasts continue to hold.

Beans are working their way down towards the next level of chart support focused around the $9.20 region. Below that is psychological support at the $9.00 mark. Stronger chart support however emerges near the $8.80 level.

Incidentally, last Friday's COT reports showed more of the same when it comes to corn, namely big spec interests still increasing their overall net long position as the market drops and drops and drops. They are using corn as the long leg of spreads involving both wheat and beans. I still have my concerns about how that is going to impact corn prices once harvest really gets rolling and storage and transportations issues become a major concern.

At this point the trading session, cattle remain lower reacting to a Cattle on Feed report that was considered Bearish. Let me rephrase that, the report was not bullish as the market was already working under the assumption of reduced numbers. However, it did show a bit more cattle than the market had already baked into the cake and that is causing some longs to go ahead and book some profits. Cattle has proven to be amazingly resilient as it is one of the few commodity markets out there that the longs have been able to make some money in recently.

That camp is going to continue to defend their long positions as much as possible. We will have to see whether these high beef prices eventually bring them back down to earth. The market appears sandwiched between the loss of demand and reduced supplies. Both sides are digging in.

That being said, the bulk of the commodity complex is REELING this morning. Here is the latest Goldman Sachs Commodity Index chart. For any commodity ( and that includes both gold and silver) to escape the general downward tug being produced by money flows OUT of the overall sector, it is going to take some incredibly powerful fundamentals for that specific commodity.

Case in point is gold today; the weakness in the equity markets is producing some safe haven flows ( Bonds are higher and the Yen is stable). That is producing a bit of a bounce in gold but the blip higher is attracting sellers up near $1220 at the moment.


It should be noted that GLD, the giant gold ETF, reported a very sharp drop in gold holdings of nearly 8 tons this past Friday. Total holdings are not at the LOWEST LEVEL for this entire year, (down some 21.78 tons from the start of the year) and the lowest level in nearly SIX YEARS!

Here is a closer in view:

Here is a longer dated view:

One has to go way back to December 2008 to find a comparable level of reported gold holdings in the ETF. Just to remind the reader, that was the point that the markets began to respond to the very first Quantitative Easing round implemented by the Fed. Another way of saying this so that it perhaps serves to bring more force to the argument, is that nearly every single bit of gold purchased in GLD at the initial implementation of QE has been SOLD. That is astonishing! Those who keep talking about STRONG DEMAND for gold are simply incorrect, at least as far as the West is concerned. They have been selling their holdings and buying equities and look to continue doing that unless there is some sort of strong catalyst that changes the equation and thus the prevailing sentiment.

It just goes to illustrate how much gold has fallen out of favor as an alternative investment class by Western-based investors. That is the reason ANY FALTERING IN ASIAN-based DEMAND will be brutal for gold.

Based on the above-mentioned collapse in GLD holdings, AND the fact that the TIPS spread is also plummeting, there is simply no reason to buy gold at this time in the minds of Western-based investors.

Here is the latest on the TIPS spread and the comparison against the gold price. Notice that both lines are moving in unison. As inflation expectations fall, ( and I might mention as the Dollar moves higher ) the gold price is falling.

I will get some more comments up later on as time permits. I am most interested in seeing the extent of harvest progress in this afternoon's reports from USDA.