"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, October 27, 2014

Soybean Meal Continues Pulling the Grain Floor Higher

Last week it was the 100 day moving average in the meal that was the talk of the town. Today, and this week, it is the 200 day moving average. Meal has now taken both of them out and has set in motion a blast of buying by hedge funds in spite of the fundamentals associated with improving harvest progress and soon to be hedge pressure.

Farmers watching the rally are sitting tight on sales of new crop ( (which is a mistake in my opinion ) as most of them now want to see how high the rally in the beans and in the corn will go before they let go of their newly harvested crop.

The problem with such thinking is that it essentially turns the farmer into a speculator. Rallies that fly in the face of fundamentals are bewildering but they can flame out faster than they began leaving a lot of people holding the bag at the highs wondering what they did wrong.

My suggestion to farmers who think higher prices are yet to come is to not hold off on selling any new crop but to sell a portion of it and replace that with call options if you think you can fetch more down the road. What you do not want to do is to end up selling at the same time all of the hedge funds do as well!

Once processors have new crop supplies of beans flowing into the pipeline, especially in the Eastern Belt, basis is going to move swiftly lower in my view. The buying frenzy that has been seen in the meal will then become a selling frenzy. Again, I have no idea when that will occur nor from what level it will take place but I am watching several key technical levels to get a sense of when the hedge funds will have awakened the big commercial hedge pressure machine.

For now, it is the funds in the driver's seat.

Meal stalled out last week at EXACTLY the 50% Fibonacci retracement level of the collapse from the May high near $412. It flew through that level this morning and is now threatening the 61.8% level near $368. Quite frankly, I am going to be stunned if it can succeed in clearing that level although with the Dollar showing some weakness today and the macro boys buying into commodities as a result, anything is possible. If it does, we could see this thing run all the way to $380 before reality sets in.

Meal had traded in a range between $360 and $340 for nearly two months ( July-Sep) before it broke down in the face of the massive bean crop expected. That it has not only returned to this former "value zone" but has exceeded it, is something that I never expected to see and I have seen a lot of weird things in the bean market over the years.

There is some chatter occurring that late rains in Brazil have turned some farmers there away from beans and towards cotton but one has to be careful with such unconfirmed rumors. More often than not, these sorts of stories arise when people are trying to come up with some sort of fundamental reason to explain inexplicable technical price action.

The technical price action has many analysts now confidently predicting a harvest bottom has been forged and that the grains are going to work higher from here. Put me in the disbeliever camp but until I see some signs that these funds are through playing "chase prices higher and move more demand to S. America" I am very careful. Those computers are unacquainted with "value" and will press in the direction that they are programmed to go until something halts them and makes them reverse.

This afternoon we'll get an update from USDA on the harvest progress.


  1. Was expecting a quiet day for grains with the report coming out this afternoon. Guess not...

  2. most xlnt articles Dan!!

    New electronic trading hours for #Livestock start today: M 9:05AM-4.PM: T-Th 8:00AM-4PM: F 8AM-1:55PM

    looks like FC LC the moo's all clean and green. hogs down.

    brazil only planted 1/2 the beans thus far as they planted on last year's pace to date.

    USO does have a peek low now former low at 30.20, today's 30.16 gonna be extremely lower volume. so a good risk reward ratio for a long in energy stuff with a stop under today's low.

    14:30ET: NYSE Vol: 416.2 mln.. Adv: 1166.. Dec: 1847
    ..stock mkt unimpressive, waiting on fomc weds. as are bonds.


  3. wd gann and hm gartley believed in triple tops/bottoms perhaps from '3 is a holy number'. they did not believe in quadruples.

    HSBC just lowered their 3 yr gold forecast to 1350, probably they would know the truth in asia.

    gold has a fib at 1155 from range 681-1923 and 1155 was the summer low in 2010. the last two lows in gold did not even hit the 1179 low from 2013, so weren't really a true test (you must actually hit the extreme volume number and reject it on lower volume kinda thing)
    conclusion: keep powder dry!

  4. 77
    I completely agree with you on oil. I think that oil is oversold atm because we didn't get a confirmation below the key $80 level. It then bounced back very strongly and is now at 80.88 which would be a strong close after testing the key $80 level. Sentiment is also ultra bearish towards oil in the near term which tells me this is a bottoming tale and we're due for a short term bounce. Unfortunately, oil producers could cap this rally after a bounce though. The dollar also looks ready for a pull back which could help gold, oil, and especially gold miners as they have stabilized after a huge fall.

    1. Oil looks cheap here compared to the previous six months or so. Remember saying that about gold a while back. I will wait for a breakout or set a really tight stop.

    2. CVX & XOM report this Friday…Their charts look much better than XOP. Agree about waiting.

      Re Gold & the miners…Gold hanging by a thread and all the miners are at or being walked down to 52wk / all time lows. It would seem that the collapse / capitulation in the miners is nigh. Trader Dan had mentioned that the HUI:GOLD hasn't been this low in 14 years…I recall the HUI:GOLD monthly low of the last bear market being close to .145 or thereabouts.

  5. #corn 46% harvested, #soybeans 70%. Winter #wheat 84% planted, 59% good to excellent.

    so we got the 1st crop condition reports for wheat.

    #Cotton Harvested: 42% v last wk 29% v 5yr avg 41%│Opening Bolls: 91% v last wk 86% v 5yr avg 95%│G/E Condition: 48% v last wk 47%

  6. New bear market closing low for the miners today. I wonder how the permabulls will spin that one.

    1. They'll tell anyone who'll listen that they're undervalued and maybe bottomed out.

      They've been saying that all the way down until this very day. No shortage of Nostradumbasses out there.

    2. what's your take on meal here Dan, tagged 400 on your chart, any evidence it topped out?

    3. southern trader;

      I honestly do not know. I have no idea when the stuff is going to become available to meet current needs. Farmers are holding back beans and that is exacerbating an already enormous logistical mess. the weird thing about this is that the shortage is only temporary but it does seem real enough that the big funds are driving everything in front of them on the buy side.

      It is an enormous mess and has sent the entire grain industry into a tizzy.


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