"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, July 28, 2014

Corn and Bean Ratings see Slight Decline

This afternoon's USDA Crop ratings showed a slight bit of deterioration in the crops this week. Coming from the incredible conditions that they have held for much of this growing season, it is not unexpected to see some slight degrading of the crop at this point. None of it is serious however.

Corn rated in the Good/Excellent category fell 1% to 75% from last week's 76% - hardly a devastating decline. The rating decline came not from the Excellent category which remains the same as the previous week at 22% but from the Good category which gave up 1% falling to 53% from last week's 54%. The Fair category remained the same at 19% while the Poor category rose that same 1% to 5% from 4% the previous week.

My viewing of the report shows that the big three ( the "I's" as I prefer to call them - Iowa, Illinois and Indiana ) actually improved this past week or remained the same. Iowa index increased to 109 from 108; Illinois increased to 112 from 111 while Indiana remained the same at 108. Minnesota actually improved as well to 103 from 102. Nebraska dropped a point to 107 from 108.

The slight overall deterioration in the total index seemed to come from Kansas which fell to 100 from 103 and from Wisconsin which fell to 106 from 108. For the purpose of repetition, a rating of "100" is normal. As you can see, most of the big producing states still have some outstanding corn crops at this point.

As far as crop progress goes, 78% of the corn crop is in the silking stage compared to 67% last year and the 5-year average of 75%. 17% of the crop is in the dough stage compared to a mere 8% at this time last year and the 5-year average of 16%.

Switching to soybeans, 71% of the crop is rating Good/Excellent compared to 73% last week. In the big three, the Illinois crop improved to 109 from 108; Indiana lost a point to 105 from 106 and Iowa remained the same at 107. Minnesota and Wisconsin remained the same as the previous week.

As with corn, Kansas saw some deterioration of the crop falling to 102 from last week's 104 reading. Nebraska and North Dakota each lost a point to 105 and 107 respectively.

As far as crop progress goes, 76% of the crop is blooming versus 62% last year and the 5-year average of 72%. 38% of the crop is setting pods compared to only 18% last year and the 5-year average of 31%. As you can clearly see, the bean crop remains well ahead of schedule, something which is a positive given the recent talk of drier weather ahead.

I am not sure how much of this is already in the market after today's 20+ cent gains in the beans. Weather forecasts at this stage will have much more of an impact on the bean market than the corn market although the trade will still prefer to see some timely rains. From what I can see of the longer range forecasts, I do not see any intense heat at this point. It does look dry for the next week but without any severe heat. That will allow for corn to finish up pollination without any undue stress at this juncture.

Bullish Cattle on Feed Report sends Cattle Futures Lower

Yes, you read that headline correctly - we do not call it the "Cattle on Fade" report for nothing. Cattle launched out of the session open on the heels of a bullish report indicating fewer cattle in cattle country than the market was originally expecting; however, in spite of the friendly report, futures could not hold their gains made early in the session as sellers began showing up.

Simply put, the supply shortage of cattle is not "new" news. We all have known about it for some time now. It is a given that we are going to be tight on supplies for a while into the future. What is also a given is the fact that many traders are doubting the ability of beef demand to sustain itself given the record high prices for beef. Any of you who do the shopping know full well what I am talking about if you have taken a recent trip to the meat counter.

After plunging earlier this month, cattle regained all of those losses and then some after beef prices continued working higher reaching new all-time highs day after day and surprising the trade. Apparently grocers have been able to move the stuff even after passing on the big jump in wholesale prices to the consumer. However, the market appears to be re-evaluating beef demand given the time of the year and the continued surge higher. At some point the consumer is going to balk at paying these kinds of prices. When they do, traders fear that cattle prices could take a dive.

This uptrend has been surprisingly strong however meaning that the volatility can be expected until one view or the other is confirmed.

Here is a look at the chart to note the price action. The uptrend remains very much intact but today's response to the bullish COF report is a warning sign.

Shifting gears to the grains, and particularly to the beans - Bulls are talking up increasing demand for beans, especially from China for the new marketing year, as reason that prices have fallen far enough for now. Also, the usual ( we get this talk every time, every year without fail ) hot, dry weather for August has some shorts covering positions and waiting and watching to see what the longer range forecasts might show for the upcoming month. Beans are typically made in August so any change to hot, dry weather will bring some weather premium back into the beans although my view is that they already have a weather premium in them at current levels. We'll see.

What is really at work here is the lack of aggressive selling the past few sessions, unlike that which we have seen over the last few weeks more than anything. Some consolidation is therefore due while the market adjusts to the new and lower price level to build some sort of base. Traders will be closely watching the weekly conditions report on Mondays as we move forward to see if there is indeed any weather-related stress for the beans or if it is just the usual chatter stirred up by the bulls to try to salvage what has been a horrible last few weeks for them. In actuality, some heat for the beans will be beneficial provided that we do not see any lack of rainfall extended out beyond more than a week or so.

My view is that foreign buyers of US beans are taking some JUST IN CASE, the forecasts change for the worst. They want to get some needs covered. We will be approaching harvest in the Southern part of the US very soon and that is going to bring some new crop supplies into the pipeline. If these foreign buyers get the sense that any weather scares are overblown, they will back away from the market and wait for lower prices.

Corn is being dragged higher by the beans if you want my honest opinion although bulls are talking increasing demand at these lower prices also. Short covering among speculators is behind today's gains.

Not much to say on gold - even with the slightly weaker dollar it is struggling to do much of anything. As said in previous posts - gold is boring right now and a waste of time until it decides to make a strong move in one direction or the other. For the time being it is just being run back and forth with no clear direction outside of the shortest of term charts.