"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, November 10, 2014

USDA World Production for Soybeans

here are the numbers we are currently working with compliments of the USDA:

In million metric tons.
                         --2014/2015-                  --2013/2014--                   Nov 14/15   Nov 14/15
                              Nov     Oct                  Nov     Oct                       Oct 14/15   Nov 13/14
World                  312.06  311.20             285.01  285.01                       0.86      27.05
United States       107.73  106.87              91.39   91.39                         0.86      16.34
Total Foreign       204.33  204.33              193.62  193.62                      0.00      10.71
South America
Brazil                     94.00   94.00                86.70   86.70                        0.00       7.30
Argentina               55.00   55.00                54.00   54.00                        0.00       1.00
Paraguay                 8.20    8.20                    8.10    8.10                         0.00       0.10
Bolivia                    2.50    2.50                     2.40    2.40                        0.00       0.10
Uruguay                  3.40    3.40                     3.50    3.50                        0.00      -0.10
East Asia
China                     11.80   11.80                  12.20   12.20                       0.00      -0.40
Korea South              0.13    0.13                   0.15    0.15                        0.00      -0.02
Korea North              0.17    0.17                   0.16    0.16                        0.00       0.01
Japan                          0.21    0.21                  0.20    0.20                        0.00       0.01

The thing that really stands out to me is the size of the increase of global supply for the 2014-2015 marketing year compared to last year. What is even more interesting is that Brazil had a huge crop last year and this year the USDA is projecting it to be even larger. Barring any sort of serious weather related issues down there for their growing season, there is not going to be any shortage of beans anytime soon.

None of this however has seemed to faze the hedge funds which have been buying beans like they are going out of style of late. It is also apparently, at least for the immediate moment, lost on China, which has been sucking up beans from here in the US like an oversized vacuum cleaner.

We'll now see with these numbers, if the cancellations from China begin in earnest or whether they will play some more with the US markets.

Has Meal Topped Out?

That has been the question on the minds of grain traders for some time now as it has been strength in the meal which has dragged the entirety of the grain floor higher. Funds are big, big longs in the meal and as also net long in the beans and in the corn based on last Friday's COT reports.

Today's USDA report generated a negative reaction in the beans, and especially in the meal, when the dust finally settled at the close of pit session trading. The report showed a slight increase in yield but that was fully priced into the market.

Essentially, the way I am reading the reaction to this report, is that it did not contain enough of a bullish surprise to justify beans levitating up at current levels. After all, we have seen them put on more than $1.50/bushel over the last few weeks. With a run like that, it would have taken a strong bullish surprise to generate much in the way of determined buying up at these levels. The beans did not get that in the report and it looks as if their inability to extend the bump higher after the first few seconds of the report, started some profit taking from some of those heavy speculative longs.

I do not want to count them out too soon however as those who have been buying them are looking more at demand issues rather than supply issues. they have been able to use a recent torrid export pace by China, coupled with logistical issues in the eastern portion of the belt, to obliterate a great deal of the shorts, not to mention pushing even harder on their profitable longs.

However, in watching the chart performance of the January meal, we may have, and I am not convinced just yet, seen a top in this complex. The meal led it up and the meal will lead it down, if indeed it is going to do so.

I am not focusing so much on the December meal because that particular month might still be impacted by the transportation bottlenecks and has seen some very wild buying and selling as it swings back and forth. However, most in the trade expect whatever remains of those issues to be cleared up sometime before the end of the year, and maybe by the end of this month. Thus we are looking past the December meal and focusing on the January meal.

That month missed a textbook outside reversal day lower by 10 cents today. The strict definition of such an occurrence is when a market that has been in an uptrend, makes a new high, exceeding that of the previous day, and then proceeds to move steadily lower throughout the session scoring a low EXCEEDING the previous day's low. Ideally it also CLOSES below that same previous day's low.

Look at the chart and you can see that the January meal exceeded the high from Friday, then moved lower throughout the session, taking out Friday's low in the process and then closing at $364.70 compared to Friday's low of $364.6.

So it did not quite make that close below the previous day's low. Yet the range it established was well outside of Friday and it occurred on extremely heavy volume.

I am also noting that the market ran up to the near the 75% Fibonacci retracement level where it failed. Also, today's high failed to reach the $384 level essentially establishing the potential for a double top with a weak right side.

All this gooblygook might not mean anything much to some but for those of us who study the charts, it does look like a serious chink in the armor of the meal bulls has been inflicted. Yet, as treacherous as this market has been of late, I am not getting too dogmatic about it just yet.

We'll have to watch subsequent price action and see what we get and then perhaps we can get some confirmation, one way or the other.

A quick note on gold.... the violent short covering rally of Friday reversed rather quickly today as soaring equities and sinking commodities, along with a resurgence in the Dollar, brought a large amount of selling back into the metal. Mining shares gave back nearly every single bit of the gains made that day as well.

We'll probably range for a while unless we get a stronger signal from another outside market to work with. Bears will try to take it back down to $1130, while bulls must get the price above $1180 to have a shot at doing something more than a one day wonder.

USDA Supply/Demand Report Day

The much anticipated USDA report hit the wires this AM and as usual, has touched off an enormous flurry of algorithmic activity.

As far as the soybean market goes, pre-report expectations were very accurate this time around. Most analysts expected a slight bump higher in the yield per acre number which would boost the final crop size somewhat but keep it below the 4 billion bushel number.

The total production number, on a yield of 47.5 bushels, is expected to be 3.958 billion bushels. That is slightly higher than last month's number of 3.927 billion.

USDA bumped up the crush 10 million bushels and exports by 20 million bushels, in response no doubt to the torrid export pace that we have seen thus far.

They thus managed to find another enough demand to offset the pop in supply leaving the expected carryover at 450 millions bushels, exactly unchanged from last month's number.

It is however, 5X larger than the ending stocks of the 2013-2014 marketing year which USDA left unchanged at 92 million bushels.

The corn is what took many by surprise as USDA lowered the yield from 174.2 bushels to 173.4. That took the total production down slightly to what is still a record 14.407 billion bushels from the previous month's 14.475 bushels. That is a drop of 68 million bushels.

They did kick corn used for ethanol up 25 million bushels as ethanol producers have been having a field day with this cheap corn.

Ending stocks thus were reduced down to 2.008 billion bushels compared to last month's 2.081 billion bushels. Last year's marketing year carryover was 1.236 billion to give you some perspective. Thus we are a bit shy of having twice the corn left over this marketing year than we had last year.

Corn bulls are getting all giddy over the number but it is difficult for me to get too excited about a record corn crop and a carryover of this size, especially given the very weak export numbers we have been getting of late. Maybe end users will decide to buy now based off of this report but that remains unclear.

The question will be what are farmers going to do now that the market has rallied some 60 cents ahead of this report and are slightly higher now after the report? Unless we get a demand surge from somewhere, we are certainly not going to be running out of corn anytime soon.

Early price action in response to the report is some weakness in the beans, notably in the meal, and some strength in the corn. I am unsure what percentage of this is spread unwinding. There are HUGE numbers of spreads that are being lifted or implemented right now and that activity if causing some fairly widespread volatility.

We will have to see how the dust settles today after some of the big commercial firms have had some time to go through the numbers and digest them. Right now it is all machine driven action.