"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


Monday, June 30, 2014

USDA Report Unleashes Massacre in the Grain markets

Today was the big day we grain traders were all waiting for as it was USDA report day. The June Acreage numbers were going to be released along with the Quarterly Grain Stocks numbers. All I can say is "Great Googly Moogly! Look at what USDA hath wrought!".

To say that the report was bearish would be an understatement, especially when it came to the beans. The sheer size of the acreage number ( a stunning 84.8 million acres ) caused traders to gasp in astonishment. This is a record. We were expecting a big number but this was well above the pre-report average estimates. To put it into a bit of perspective - last year 76.53 million acres went to beans. Previous USDA estimates were at 81.49 million acres. No matter how one looks at this report, it is a shocker.

The combination of sky high soybean prices and unseasonably cool, wet weather in certain key corn growing areas, meant that the move to soybeans was strongly underway. Also, the weather in other key soybean growing areas was very good and led to the crop getting in early in some cases.

This report confirms that old but wonderfully time-proven adage; " The best cure for high prices is high prices". Simply put, the market sent the signal that more soybeans were needed and farmers responded accordingly.

If that was not bad enough for the bulls, USDA also came in with an ending stocks estimate that was above the pre-report guesses as well. Analysts were looking for 387 million bushels for carryover but got 405 million instead.

They also gave corn a swift kick in the rear by raising ending stocks estimates to 3.854 billion bushels, well above the 3.724 billion estimates. This is spite of the fact that the big move towards beans among farmers meant less acreage going to corn this year. The agency anticipates 91.64 million acres of corn compared to previous estimates of 91.69 million. To provide some comparison perspective - last year 95.37 million acres went to corn.

While the acreage number for corn, on the surface, seems friendly, ideal growing weather, a huge bean crop and reduced corn demand as evidenced by the 39% increase in ending stocks, gave the signal to the market to take the price lower yet.

This is excellent news for the livestock and poultry industries.

Expected wheat acreage also rose but out of the three categories, the wheat number looks the least negative. KC wheat is actually holding up fairly well given the weakness in SRW and the sharp downdraft in corn.

Farmers can still make money at these prices and hopefully some of them had secured some strategic option positions ahead of the report to give them some downside protection. This particular USDA report is notorious for producing very big and very wild swings in prices. It lived up to its reputation once more.

One side note - in speaking with a reporter over at Dow Jones today on the livestock markets and the reaction of the hogs to the Quarterly Hogs and Pigs report out last Friday, I commented that this USDA report is going to produce a very big shift in Farrowing Intentions for the rest of this year. Hog producer profits look to be outstanding due to these sharply lower feed costs. While most of the hog contracts are locked limit up today having opened that way in some months and remained there for the session at this point, next year should be considered optimistically by hog producers.

To the shell-shocked consumer who is watching gasoline prices moving higher, beef and pork prices soaring and seeing the number of grocery bags that they can bring home for the same price shrinking, at last we have a glimmer of good news on the food cost front. As I have said before, we are going to have to deal with high red meat prices for the entirety of this summer but some relief is still in sight later this year and certainly by next year. (* at least for now! Who knows if the weather will stay this cooperative for the remainder of the growing season!).

Here is a quick look at the November Soybeans Chart about 45 minutes after the USDA report release. Notice that the Head and Shoulders Pattern that was forming on the chart was violently confirmed by the breach of the neckline. Without getting too bogged down in details at the moment, given the time constraint and busy markets I am dealing with right now, the pattern target is down near $11.20 - $11.25. This of course assumes the weather remains friendly.

More later.....


  1. Snap back move in the precious metals today - nice. Silver looking really strong! Held that Higher Low at 20.80 (Hourly Chart) and jumped right off of that. Looking Good until $22/$22.25...

  2. Thanks Dan, that was interesting.

    I've got a lot to learn about these other commodities (grains, livestock etc.) and reading your behind the scene outlook on them is helpful in trying to get up to speed.

    Food prices have been noticeably higher at the gocery store and elsewhere the past 6-8
    weeks it seems.
    My unofficial pizza inflation indicator (size vs. price) isn't looking too good lately. :-(

  3. Gold surmounts another hurdle over $1325; on the MARGIN, not a good idea to wander in the jungle with a BEAR outfit.

  4. 7/1 this is good: 'Managed funds still have length to shed in corn, and seem ready and willing to press shorts in wheat and soybeans. Without their money on the long side, markets need to find the natural buyer by way of demand.'

    wheat has alot of lows in july on continuous charts. voice of the tomb buy dec wheat today!



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