"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, September 22, 2014

Corn Conditions Hold Steady; Beans Dip Ever so Slightly

The weekly USDA Crop Conditions and Progress reports were released this afternoon as they always are on Mondays' during the growing season. The results show the percentage of the corn crop rated Good/Excellent unchanged at 74% but even that masks the fact that the percentage rated Excellent jumped by 1% with the 1% drop coming from the Good category. A whopping 23% of the corn crop is rated Excellent. Think about that for a moment - nearly a full quarter of the crop has the highest rating possible!

As far as corn maturity goes, this recent weather has been ideal for the crop to begin catching up to its more usual maturity ratings at this time of the year. Remember, I have been maintaining that the reason for the lag in the crop maturity rate has everything to do with the exceptionally perfect weather and moisture levels for the plants which kept the plant from shutting down as it usually does when the weather tends to turn to its more seasonal dry period at this time of the year. My view is that while it keeps the plant from shutting down it also results in bigger kernels and even better ear fill. As long as that plant can put energy into those kernels, it will. That translates to bigger overall yields which I believe is going to be confirmed as the harvest results start multiplying.

However, to provide the numbers - 90% of the crop is now dented compared to 82% last week and 90% at the same time last year. The 5 year average is 92% so for all practical purposes, the crop is now catching up.

42% of the crop is mature versus 27% last week and 37% last year! Compared to last year, the crop is now ahead slightly in that regard. The 5-year average stands at 54%.

Harvest is at 7% compared to 7% last year ( dead even ) and the 5-year average of 15%. Good weather will help farmers make tremendous progress in areas where the crop is ready to go to the bin.

On the soybean front - there was a slight bit of deterioration this week with the percentage rated Good/Excellent dropping 1% to 71% from 72% last week. In going through the data state by state, it looks as if the minor decline came from Minnesota and Michigan ( northern tier states ) so perhaps some of that is indicative of some very mild frost damaged that occurred very early just ahead of the previous weekend and was reflected a bit later in the week when the surveyors had a chance to get out into the fields and take a look-see.

That being said, the Wisconsin crop actually improved to 49% Good from 48% last week and held steady at 24% Excellent  from the previous week. North Dakota lost 1% in the Excellent category to 16% but it moved to the Good category which is now at 59% compared to last week's reading at 58%.

Still when you consider that Minnesota has 65% of its crop rated Good/Excellent with 27% rated fair, while Michigan has 61% rated at Good/Excellent and 26% Fair, it is quite a stretch to try to talk up prices by referring to frost damage with those kinds of ratings.

More important in my view is the fact that 45% of the crop is dropping leaves compared to 24% last week ( the number nearly doubled!) and 44% the same week last year. That is good news. The 5-year average is 53%.

On the harvest front - 3% of the crop is in the bin compared to 3% last year at this time and the 5-year average of 8%. One can definitely see the progress in the Delta which is running ahead of not only last year at this time but also ahead of the 5-year average. The harvesters are coming north!

Based on what I can see of the forecasts at this stage, they look very good on out into the first week of October. We should see some very good harvest progress in some areas. The warmth should also speed along those crops in the northern tier states.

We'll see how the Board reacts to this tomorrow but I find any bullishness in it missing.

Incidentally, changing gears a bit here to look at the mining shares as evidenced by the HUI, the index has fallen to support at the late May/early June lows of this year and looks very precarious. Also, that happens to nicely coincide with the top of the gap made on the chart to start the year when the shares jumped sharply to start of the new year.

The index is very close to surrendering the entirety of this year's gains. The way things stand at the moment, the gold shares are not exactly sending out a ringing endorsement of higher gold prices. The longer gold remains below $1220, the more the odds grow that it will revisit psychological round number support at $1200. If it changes handles, a test of the major low near $1180 will be coming shortly thereafter.

Note that the HUI/Gold ratio continues to plummet:

On the US Dollar front, traders seem a bit unwilling the take the greenback up through the 85 level basis USDX. If they do, gold will  more than likely not hold $1200.

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.