"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


Thursday, September 11, 2014

USDA report sends Grains Reeling

Talk about a bearish set of reports! Most everyone was expecting the numbers to be on the bearish side as reports from private firms have been indicating crops in incredible shape with the potential for strong yields picking up with the passing of each month. USDA tends to be a bit conservative however and that had most in the trade expecting them to confirm higher yields but to wait for their October report before getting too optimistic.

Boy howdy was that NOT the case!

In the case of soybeans, USDA left both planted and harvested acreage unchanged from their August report (84.8 million and 84.1 million respectively) but it was the big jump in yields that caught many off guard. They found another 1.2 bushels per acre of yield from the August number of 45.4 to an astounding 46.6!

The result - a massive crop of 3.913 billion bushels, well up from last months 3.816 billion. Combine that with imports of 15 million bushels and the total supply jumped to 4.058 billion bushels of beans. I am still reeling when looking at that number!

USDA increased both crushings and exports from August bringing total usage to 3.583 billion bushels. That leaves a carryover of 475 million bushels, more than THREE TIMES Larger than the past marketing year number of 130 million.

Beans wasted no time in adjusting to the new numbers and are sharply lower as I type these comments.

When it comes to corn, they did the same thing as they did with beans on the planted and harvested acreage -= they left them unchanged at 91.6 million and 83.8 million respectively.

The kicker was a huge leap in yield coming in way above what most in the trade were expecting at this stage of USDA reporting. Last month's yield estimate was 167.4 bushels per acre. That in itself is phenomenal. This month, they moved that number up to an eye-popping 171.7 bushels per acre! WOW!

the result is a total production number of 14.395 billion bushels, well up from last month's already incredible number of 14.032 billion.

USDA increased feed usage slightly ( I am not quite sure why they are doing that unless it is coming from ideas of increased poultry and hog production). Exports were increased by only 25 million bushels. Ethanol production will consume an additional 50 million bushels compared to last month's estimate.

Even with the increase in usage, carryover will end up at over 2 billion bushels of corn, not quite more than double that of last year's crop.

What is even more astonishing to me as a trader is the fact that this is occurring against a backdrop in which the hedge fund community and the large reportables are overwhelming on the NET LONG side of this market. Talk about a recipe for a trading disaster! Rarely have I seen this group get a market so wrong! My concern is that their compounding and significant losses on their positions are going to engender even more selling in the corn market!

One thing I can definitely say - if this crop manages to get to harvest without any serious frost issues ( and it is running a bit behind normal maturity), hog, cattle and chicken producers are going to be in "hog heaven".

It is about time for those guys to get a break and this is a big one. They deserve some much needed profitability, especially in the hog industry where PED virus has negatively impacted so many.

By the way, as an important corollary connected to my post last evening comparing the S&P 500 to the overall commodity sector. The GSCI did another swan dive today with these sharply lower grain prices adding more to the bearish environment for commodities in general.

Silver is looking like it is going to crack major support near $18.60 especially with soybeans swooning like they are.

Gold has lost critical support at $1240 as I hurriedly try to type these comments. It is hovering just above the bottom of a band of support extending from $1240-$1235. If it loses that, $1200 looks like it is coming.


  1. Replies
    1. Soren,

      It depends on your time frame, your target, your stop, your position size and your risk appetite.

      It is like asking - is it a good day to go fishing?

  2. the ags produce high volume into new contract lows, so whatever today's low is would need a lower volume 'rejection' down the road for a durable bottom (wyckoff style).

    funds got it correct on wheat (large net short in ZW) as the numbers are horrible: World wheat ending stock seen higher by 3.4MMT to 196.3MMT with increased stocks seen from EU. USDA cut wheat exports by 25 million bushels due to increased competition.

    what we see in corn-beans is reflective of the cool weather all summer. if the weather didn't go above 86 degrees (which it mostly didn't) then the crops just kept on gaining 'degree days':
    a)that gave beans a record 'pod count'-
    September usda pod weights a record and not even close 0.32 vs previous record .305 grams/pod.
    b) corn came in near 2009- USDA objective Ear Weights vs. Ear Counts Both up from Aug. Weight is why big crops get bigger.

    some people had thought strength in the meats was somebody knowing putin would deescalate, but perhaps they just knew their ags!

    1. 77;

      That has been my contention as to why we are getting a bit of a lag in crop maturity. Corn and bean conditions have been so good with such ample moisture, that the plants are not shutting down as early as they typically do when it begins to dry out. That means more energy is going into the corn ears and bean pods meaning larger kernel size, heavier weights, better pod filling and bigger pods. It all translates to larger crops.

      The only thing left to save the bulls at this point is a hard filling freeze. They will try to talk that up. If the forecast models are accurate and we get a more seasonal warmup next week as expected, that will help maturity tremendously.

  3. Hi Dan -

    Gold going to $1200? Silver falling off a clif. Just for fun, every time you say something is very very likely to happen, the opposite occurs like your early gold call in 2014. II will take a very very very small position in gdx, and take the opposite for a short term profit - I hope.

    1. jmsvett;

      how about taking a very, very, very large position instead. that way you can be a true hero.

      After all most money is made in the markets but always fighting the prevailing trend.

      Your kind make me laugh. I never claim, nor have I claimed to get things 100% correctly although I have been doing some thing right to still be here after nearly 25 years of trading for a living.

      I do not make calls either. I tell what will happen if support or resistance levels give way.

      Stop putting words in my mouth.

      Good luck to you. I hope you make a huge fortune on that trade so that you can come back to us and crow about how great you are. After all, that is the mark of a real trader, cockiness, arrogance and no humility.

      Me... I will continue to try to do my best to navigate these very difficult markets. As far as the gold shares go, you can have them. I deal with commodities.

    2. what do I always say about not letting one's alligator mouth overloading his hummingbird ass?

    3. steve brassey;

      internet conversation does not allow for seeing the smile on one's face when writing something or the chuckle or winking of the eye.

      I need to learn some more patience with folks. After getting enough of the hate posts and hate emails from the gold cult members, I tend to be a bit jumpy at times. My mistake on that one.

    4. no Dan, I was referring to the kid, NOT you! He as out of line

  4. $23.82 to over $24.00

    By the way - I do believe you Dan that gold will go to $1200 eventually - I just think it has come very hard and very fast. At least a day breather seems due to me.

    1. This comment has been removed by a blog administrator.

  5. jms

    other than having a snide dig at Dan, what point are you trying to make?

  6. Well all I can say is that the 1987 crash we have experienced in the CRB Index has been the biggest gift to the economy since 2008.

    XRT is less that 75 cents from world record, lifetime highs, as the institutional investor has spoken.

    The consumer has had the most unreal streak of good luck and good breaks over the last 5 years, from debt forgiveness, mortgage modifications, booming stocks, and collapsing energy and food prices.

    As I have said repeatedly, the consumer has never been stronger or in better shape to spend money.

    1. I just don't see it Mark. Maybe the top .999% feels better and will start to spend some money but to me this just looks like capital hunting a yield. I agree though that there is a chance we could see velocity increase and the positive effects "trickle down" if the stock market keeps rising. If the trend in lower energy costs continues this could also help increase monetary velocity.

      So far IMO this market rally is divorced from the economic reality.


    2. You must live in a dream world Mark.

      Credit card debt just hit new 2008 post recession highs, the consumer is broke again and in debt up to their ears.


      Just another reason interest rates can never be normalized again.

    3. Mark is right. Hyperbole aside. Global auto production is at all time highs & growing. Cheap credit may have fueled this. Sure there will be hell to pay and it all will end badly. But, what, doesn't end badly?

      New York City is packed with and bustling, not just with evil bankers, but al people of all ethnicities from all backgrounds living in relative peace with one another (I just got off a packed subway train). It's pretty amazing on the anniversary of 9/11.

      Stonington, ME - the lobster docks are filled with all new full sized pickups - 1 to 2 year old models at oldest. I've never seen so many late model vehicles in Maine (there on Labor Day). So there is some prosperity trickling down to the common man (avg. Maine lobsterman salary $40,000). Maine hardshell lobster go for $5.99/lb retail, $4.99 or less for shedders, in case you want surf & turf Steve in Sparks.

    4. http://www.stlouisfed.org/on-the-economy/what-does-money-velocity-tell-us-about-low-inflation-in-the-u-s/

    5. Barney
      I don't reguard high credit card debt as a sign consumers are confident and spending wildly.

      For those under or unemployed, it an ATM to survive on.
      With wages and work hours effectively stagnant, and lowest labor force participation ever(?) I think the ATM is more likely than wild spending.

    6. Yes thats a good point Mike.

  7. The point is that no one knows. None of us is perfect, or we will all be living somewhere on an island.

    For the record, I have teased Dan before, and he took it very very well. It was not meant to be negative or being a gold bug in any way.

  8. Dan -

    I apologize profusely. It was not meant as a dig.

    Sorry to get you upset. I did not mean anything by it.

    It seemed like Dan was hurrying the post to warn people about impending $1200.

    1. jmsvett;

      apology accepted. Please do stop from putting words in my mouth however. I did not say gold was going to $1200. I said IF it cannot hold support between $1240-$1235 it will test the $1200 level. It might hold; it might not. I honestly do not know.

      I am just giving probabilities based on my understanding of where support and resistance levels are located. Over the years I have learned not to give price projections simply because I have no way of knowing where and at what level market participants see prices as cheap or as expensive. We can guess at those levels but when all is said and done, they are just guesses, even if educated ones.

      These markets are extremely tricky because they move so quickly due to the nature of computerized trading. All we can do is try to keep from getting hurt too badly on any given trade and look for advantages where and when we can find them.

      Good trading to you. If you do take that trade, I do hope you make some money on it. Just realize that you are bucking the trend so be careful not to let anything get away from you if the trade is a good one. Have a stop out point figured in advance at which you can get out if the trade goes against you.

      Best regards

  9. Its reassuring - and increasingly uncommon - to see two grown men behaving like grown men


  10. For the record - I simply got lucky with gdx this afternoon. I am still holding but will sell before close today.

    I agree that fighting the trend is normally stupid. All in all, despite being on a winning trade, it was a stupid hunch on my part. I could have gotten crushed.

    1. jmsvett;

      If a trade is going in your favor, but you are a bit unsure about it, you can always take some money off the table and let the rest of it ride. That way the worst you can do is to make either a smaller profit or break even. On the other hand, if it then continues in your favor, you will still have some positions which will make you more money.

      Managing profitable trades can be harder than getting out of losing ones!

    2. Thanks.

      I will take that advice.

      I certainly have learned something from you previously as well. Watch gdx - it can give you odds in anticipating moves with gold. 10 minutes later - gold is starting, starting to move slightly higher.

      But I agree with you Dan - the trend is not pretty for gold at all.

  11. Just in case I just developed magical powers - for totally the fun of it!!!!!

    My next purchse is rsxj. Trending up in the short term. Today its down due to European sanctions. Russian small cap index.

    Lets see - for fun. But I just put money on it. And hope to hold a long time.

  12. Just a comment on the auto industry. Sales are surging but its all due to cheap credit and give aways. When you see someone driving a new truck or car, odds are its financed over eight years with anywhere from 0 to 10 per cent depending on your credit rating. It is not a sign of prosperous consumers. As well, in spite of the sales, the auto manufacturers are not making any money because of their incentive programs and cut throat competition.

    1. Good point KJM: GM's operating cash flow went from 6.7 billion in 2010 to 12.6 billion in 2013. FCF went from 2.5 billion to 5 billion. But Ford 's operating cash flow was static and slightly down in the same period, as was Volkswagon's.

  13. "Managing profitable trades can be harder than getting out of losing ones"

    managing profitable trades would be a good topic to write about sometime- would likely be high interest in that topic! With your experience and writing ability, you could write a book on trading with an entire chapter dedicated to this topic no doubt. I know Hubert posts here quite often takes profits in "thirds" which seems to work for him. There is probably as many ways to do it as there are traders... The more I trade the more I understand that knowing when to get out of a profitable trade is just as important as knowing when there is a set up to get into one. As quickly as the markets turn these days, and as volatile as they can be, its not that easy at times. Knowing when to get out or to stay the course and ride out what may be volatility is no easy call.

    Thanks for the posts today. BTW your comments on feeder cattle were very timely yesterday. Maybe the weakness in today's session will continue into the fall.

  14. Interesting stuff in the Agg markets. It just keeps on rolling.

    Looks like gold broke 1240 down to 1236 on the NYMEX. Bounced back and is holding above 1240 as Asia opens. Maybe we won't have to explore the 1200 support right now. Sure could in the future if the down tend continues.

    Thanks Dan.

  15. Anybody who bought XRT or XLY in 2009 and held throughout has real profits and real money now.

    That's no dreamworld.

    The dreamworld is the hangers and hopers who got blowtorched on their peak oil or hyperinflation thesis and have lost so much money that they will never recover, unless their fantasy world materializes with gold and oil limit up for days and days.

    But that will never happen.

    1. Hold your horses there Mark, what about:

      the empty gold vaults
      coin demand
      silver shortages
      up coming WW3


  16. USDX has been hanging around for 3 days and has not backed away from the highs. The longer it consolidates there, the more likelihood of a continued rally and a continuation of the "2008 crash" in commodity land.

    Funny how none of the experts over at KWN, jsmineset, shadowstats, murphysworld, etc. even had the foggiest clue that we were on the cusp of a massive implosion in the CRB Index, just 3 months ago!!!

  17. Wow, gold and silver keep getting blowtorched, no end in sight.

  18. Somebody is getting Amaranthed: Sprott, Schiff, Embry, Von Greyerz, etc.

    Gonna get hit with a huge tsunami of redemptions Monday morning.

    And that avalanche of cash is going to be finding another home, the trick is to see where it goes: Russell 2000, Hang Seng, Stoxx 50 in Europe, etc.


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