Living up to their reputation for catching market participants off guard and creating fireworks, the September 2014 Quarterly Hogs and Pigs Report was released this afternoon and "boy howdy" was it a bearish doozy!
In every single category, it showed USDA's numbers far exceeding the average of analysts' estimates ahead of the reports.
Here is a copy of the report, courtesy of Dow Jones:
USDA's Average Range
estimates of estimates of estimates
All hogs and pigs on Sep 1 98 96.6 95.6- 97.5
Kept for breeding 102 101.4 99.8- 104.7
Kept for marketing 97 96.2 94.9- 97.0
Jun-Aug pig crop 99 97.6 96.4- 99.0
Jun-Aug pigs per litter 98 97.3 96.2- 98.9
Jun-Aug farrowings 101 100.4 100.0- 100.7
Sep-Nov farrowing intentions 104 103.2 102.0- 104.3
Dec-Feb farrowing intentions 104 101.5 98.2- 103.6
Hogs weighing under 50 lbs 98 97.9 96.1- 100.4
Hogs weighing 50 to 119 lbs 98 96.4 94.9- 97.7
Hogs weighing 120-179 lbs 97 94.9 94.0- 96.2
Hogs weighing 180 and over 94 93.6 90.9- 96.6
What the report shows, when you dig into it even more deeply, is the number of Pigs Per Litter moving back above the "10" level for the first time since November of last year.
That is a testament to two things:
1.) increased bio-security protocols being followed by larger scale hog producers
2.) decreased incidence of the disease during the warm, dry months of summer
Once we work through the temporary tightness in hogs that has been supporting the nearby October contract, hog numbers are going to ramp up rather rapidly. Also, extremely heavy/record hog weights will continue to mitigate any impact from the PED virus which has plagued the industry.
In comments to the wire reporters this afternoon, I noted that if these heavy weights continue, and I see no reason why there are not going to do just that, especially with cheap new crop corn coming in which is much more nutritious than the older crop stored over from last year, we should see pork production exceed the previous year's numbers for the first time in quite a while.
Another thing - with more abundant pork just ahead, end users of US pork, based on what they can now see in this report, should not be in any particular rush to load up on high-priced pork. Couple that with a soaring US Dollar and I expect export buyers to put off purchases until prices move lower.
I should also note that corn prices have fallen another $0.40/bushel since this report was tabulated. Grain (feed costs) have gotten even cheaper for producers) and that means more chances for increased profits. That will work to spur additional intentions.
While cattle have been shrugging off one negative factor after another, I think this is a bridge too far for even the cattle bulls to have to deal with. We are going to be seeing more pork and more chicken available in the Q4 and Q1 2015. Beef is pricing itself out of the demand side of the equation.
There are now TWO approved vaccines that are out there for PED virus. We are going to find out how effective these are at getting that disease under control, but if they prove to limit mortality even somewhat, the industry is going to see increased numbers as low grain prices will spur even more attempts at expansion.
Right now, based on what I can see in this report, odds favor limit down openings across the complex with perhaps the exception of the October on Monday morning. That month has been the beneficiary of a recent tightness in supply as evidenced by the 180pounds and over at 94% of last year's levels. However, the bulk of those hogs have been put down at this point.
The trade was anticipating a negative report based on the price structure of the Board but this report was so negative and exceeded the average of estimates by such a significant margin, that the initial reaction should be negative. We will have to see how things progress throughout the day however.
Friday, September 26, 2014
Thursday, September 25, 2014
Copper hit by China News
Do any of the readers remember not that long ago when the talk in the copper market ( and the metals market) was about those fraudulent financing deals that were being investigated in China. To refresh your memory, it appeared that the same stash of metal was being used to secure financing multiple times.
That made a big splash at the time but then seems to have been largely forgotten until overnight news surfaced that the amount involved in those less-than-upright deals was in the vicinity of $10 billon!
The metals were stored in two port cities, Qingdao and Penglai. Reports noted that potential losses for foreign banks and commodities firms could be close to $1billion. Worse however was estimates that exposure for Chinese banks could potentially be in the billions ( yes, with an "S") of dollars.
That send copper lower - as if it did not already need any help moving in that direction.
The red metal has pushed down into an important chart support zone. Failure to hold here and copper is going to change handles to a "2". It will, as it always has, take its cues from economic data.
As a way of reminder - that certain website out there, which goes by the name, "We never saw a news article that we could not interpret and spin to be bullish for gold", was pushing that story as one more perma bullish gold theory not that long ago when this thing was in the news. Talk about another one biting the dust!
Their bizarre claim was that somehow double-counted metal was bullish for gold because all of that gold that was hedged was going to have to be covered resulting in a huge rally in the yellow metal. Whoops!
By the way, gold is still holding onto its gains as the equity markets are not as of yet showing any signs of serious buying. The yen remains higher as does the bond market which is up over a full point now. Safe haven buying is definitely keeping gold aloft at the moment.
On the moo-moo front, they simply will not break down even as the beef weakens. Packer margins are already deep in the red but that is not fazing the cattle bulls. I thought that perhaps, just maybe, we might see the cattle sell off with the lower equity markets today, but no dice.
Those who think gold is volatile should try their hands at the hogs. The blasted things fell to practically limit down earlier today and then cut those losses in half as there was what might best be described as a "panic buying" short covering binge that hit the pit 15 minutes before the close of the pit. With the big Quarterly Hogs and Pigs report due out tomorrow, no one knows what to expect.
My view at this point is that regardless of what the report might or might not say, the industry is going to ramp up in a big way. It might not be reflected in that report since many hog producers have gotten wise to telling USDA their breeding plans in advance, but nonetheless, with two vaccines now approved and with dirt cheap corn prices, I expect to see significant efforts to enlarge herds. We shall see. I have been wrong on these wildly unpredictable reports before so it will not be the first time if I am.
What matters more than the report however is the reaction to it and that we will not get until next Monday morning.
One last thing- those corn/wheat spreads are coming right back on again. Amazing.
That made a big splash at the time but then seems to have been largely forgotten until overnight news surfaced that the amount involved in those less-than-upright deals was in the vicinity of $10 billon!
The metals were stored in two port cities, Qingdao and Penglai. Reports noted that potential losses for foreign banks and commodities firms could be close to $1billion. Worse however was estimates that exposure for Chinese banks could potentially be in the billions ( yes, with an "S") of dollars.
That send copper lower - as if it did not already need any help moving in that direction.
The red metal has pushed down into an important chart support zone. Failure to hold here and copper is going to change handles to a "2". It will, as it always has, take its cues from economic data.
As a way of reminder - that certain website out there, which goes by the name, "We never saw a news article that we could not interpret and spin to be bullish for gold", was pushing that story as one more perma bullish gold theory not that long ago when this thing was in the news. Talk about another one biting the dust!
Their bizarre claim was that somehow double-counted metal was bullish for gold because all of that gold that was hedged was going to have to be covered resulting in a huge rally in the yellow metal. Whoops!
By the way, gold is still holding onto its gains as the equity markets are not as of yet showing any signs of serious buying. The yen remains higher as does the bond market which is up over a full point now. Safe haven buying is definitely keeping gold aloft at the moment.
On the moo-moo front, they simply will not break down even as the beef weakens. Packer margins are already deep in the red but that is not fazing the cattle bulls. I thought that perhaps, just maybe, we might see the cattle sell off with the lower equity markets today, but no dice.
Those who think gold is volatile should try their hands at the hogs. The blasted things fell to practically limit down earlier today and then cut those losses in half as there was what might best be described as a "panic buying" short covering binge that hit the pit 15 minutes before the close of the pit. With the big Quarterly Hogs and Pigs report due out tomorrow, no one knows what to expect.
My view at this point is that regardless of what the report might or might not say, the industry is going to ramp up in a big way. It might not be reflected in that report since many hog producers have gotten wise to telling USDA their breeding plans in advance, but nonetheless, with two vaccines now approved and with dirt cheap corn prices, I expect to see significant efforts to enlarge herds. We shall see. I have been wrong on these wildly unpredictable reports before so it will not be the first time if I am.
What matters more than the report however is the reaction to it and that we will not get until next Monday morning.
One last thing- those corn/wheat spreads are coming right back on again. Amazing.
Stock Market Weakness Brings Safe Haven buying into Gold, Bonds
One look at the Japanese Yen is all that one needs to know that the safe haven trade was being plied today. As the stock market moved lower ( surrendering its gains from yesterday), the Yen moved higher. Bonds moved up a full point and up came gold from the grave.
This is why trading the Yen in the current environment can cause one to invest heavily in a supply of Tums or Rolaids. The infernal currency has somehow over the years morphed into a safe haven. In effect, one ends up trading risk or no risk when trading the yen.
It looked as if gold was about to run down and test $1200 as it traded below Monday's low but that safe haven buying popped it back up.
The bulls are certainly putting in a good faith effort to prevent it from breaking down and changing handles.
Very quickly on the grains... so much for the wheat rally from yesterday. Strength in the Dollar is proving to be a big lead weight for wheat.
I will try to get some more up later... it is a busy morning in trading land.
This is why trading the Yen in the current environment can cause one to invest heavily in a supply of Tums or Rolaids. The infernal currency has somehow over the years morphed into a safe haven. In effect, one ends up trading risk or no risk when trading the yen.
It looked as if gold was about to run down and test $1200 as it traded below Monday's low but that safe haven buying popped it back up.
The bulls are certainly putting in a good faith effort to prevent it from breaking down and changing handles.
Very quickly on the grains... so much for the wheat rally from yesterday. Strength in the Dollar is proving to be a big lead weight for wheat.
I will try to get some more up later... it is a busy morning in trading land.
Wednesday, September 24, 2014
GLD gold holdings hit new Yearly Low
Western-based gold investment demand continues to plummet as gold is being sold in order to buy equities. It is a continuation of the theme that has been in place for the majority of 2014. The surging stock market, coupled with a strong Dollar, is undercutting interest in the zero-interest paying asset.
Add to this recipe falling inflation expectations, and it is looking more and more likely that, barring some sort of unforeseen geopolitical event, gold is not going to be able to stay above the $1200 level.
Take a look at the following two charts which I post very regularly here. The first is the reported holdings of the giant gold ETF, GLD.
Holdings are now at 773.45 tons, the lowest reading of the year thus far and down some 24.77 tons from the starting point at the beginning of this year. One must go all the way back to December 2008 to find that amount of gold in the ETF! That is nearly six years ago. My oh my, how the mighty have fallen!
Here is the TIPS Spread chart and the price of gold overlaid upon it. Notice the near perfect relationship between the TIPS spread line and the price of gold. As inflation expectations in the market fall, so too is the price of the yellow metal
There is nothing in either of these charts that would suggest some sort of coordinated assault on the gold price as some still want to argue. The simple facts are that for now, the fundamentals favoring a higher gold price are not present. That could change at some point as all markets are indeed subject to shifts in sentiment, but to argue that gold would be multiples higher were it not for some sort of constant price manipulation scheme by the powers that be, is a colossal waste of time, energy and intellect.
Here is the most current Velocity of Money ( note I am using the M2 money measure ) through the end of the first quarter of this year.
As long as this line continues to move lower, inflation pressures are going to be rather elusive. I maintain that the jobs situation in this nation, especially wages, is going to have to change for this line to turn higher.
Add to this recipe falling inflation expectations, and it is looking more and more likely that, barring some sort of unforeseen geopolitical event, gold is not going to be able to stay above the $1200 level.
Take a look at the following two charts which I post very regularly here. The first is the reported holdings of the giant gold ETF, GLD.
Holdings are now at 773.45 tons, the lowest reading of the year thus far and down some 24.77 tons from the starting point at the beginning of this year. One must go all the way back to December 2008 to find that amount of gold in the ETF! That is nearly six years ago. My oh my, how the mighty have fallen!
Here is the TIPS Spread chart and the price of gold overlaid upon it. Notice the near perfect relationship between the TIPS spread line and the price of gold. As inflation expectations in the market fall, so too is the price of the yellow metal
There is nothing in either of these charts that would suggest some sort of coordinated assault on the gold price as some still want to argue. The simple facts are that for now, the fundamentals favoring a higher gold price are not present. That could change at some point as all markets are indeed subject to shifts in sentiment, but to argue that gold would be multiples higher were it not for some sort of constant price manipulation scheme by the powers that be, is a colossal waste of time, energy and intellect.
Here is the most current Velocity of Money ( note I am using the M2 money measure ) through the end of the first quarter of this year.
As long as this line continues to move lower, inflation pressures are going to be rather elusive. I maintain that the jobs situation in this nation, especially wages, is going to have to change for this line to turn higher.
US Dollar Breaks Through Overhead Resistance; Euro Sinks
King Dollar is back! If I am reading this chart correctly, it looks as if the Dollar is on track to manage SIX CONSECUTIVE HIGHER WEEKLY CLOSES. That is the first time that will have happened in more than 4 years!
The greenback has finally managed to push past a key technical chart resistance level near 85 basis the USDX.
While the trading week is not yet ended, if the Dollar can stay above this level noted on the chart to finish it out, I frankly do not see much in the way of further overhead resistance until one nears 86.50 - 87.00. If it does indeed go there, I do not think gold will be able to stay above $1200 as there should be a continuation of the general macro trade jettisoning most commodities should that occur.
The flip side to this is the abysmal showing of the Euro which continues to plummet. Simply put, the Eurozone economic growth has stalled out and its central bank is no where near talking about raising interest rates. That leaves the Dollar with its distinct interest rate advantage, the key factor that has been driving the currency markets for the last 4-5 months.
In looking at its chart, there is a bit of support just below the session low of today. Further down is a zone near 1.2665 - 1.2650. I do not see much in the way of support of any significance if the latter level were to give way. In other words, it is entirely possible that the Euro may see the 1.2000 level. You might recall that during the European sovereign debt crisis, the Euro was plumbing those depths. For TA purposes, that is a double bottom on the intermediate chart. Heaven help that currency if it were to lose that level for any reason!
With the Dollar as strong as it is, one can expect to see gold moving lower, and that is precisely what it is doing.
Here is the recent chart:
Price is attempting to stabilize near current levels; however, the key will be this week's low near the $1208 level. If the bulls can prevent the bears from taking price below that level, they have a change at stemming the bleeding and moving the market into a sideways pattern, halting the downtrend that has been in place. If not ( and especially if the Dollar continues to move higher), $1200 is going to be tested and will probably not hold. We'll just have to wait and see.
Shifting to the grains for a bit - that Corn/Wheat Spread, the one that has been keeping the big specs on the long ( and wrong) side of the corn market, once again failed near the 140 level. That just seems a bridge too far at this point. Corn managed to eke out some gains today as the forecast maps showed a rather large rain event scheduled to hit the corn belt near midweek of next week. That immediately set the bulls yapping about damaged crops, disease, delays in the harvest and the beginning of the Apocalypse. I read where one bullish analyst swore that he saw a Black Horse Rider going through the corn fields of Illinois with a big scale in his hands crying: " a quart of wheat for a denarius, and three quarts of barley for a denarius, and do not harm the oil and the wine".
We'll keep an eye on things but for now it looks to me more like a case where some shorts decided to book some profits on the forecasted rains to wait for a bounce higher to sell it again.
Also, there has been some chatter about increased export demand for US wheat, now that prices have fallen to near 5 year lows. I am interested in seeing if such develops for any reason. There are a significant amount of hedge funds and other large specs who are Long corn, and Short wheat, and if this spread reverses violently, we are going to see some interesting price action in the corn in particular.
I think the strong dollar is going to put a cap on any potential wheat rallies but that assumes that other key growing areas around the globe remain free of weather-related threats. Currently there is a large glut of wheat around but the one thing about that market is that other growing regions have to be monitored.
Wheat started the day on a strong note but lost about half its gains going in to the close. Still, it managed to maintain its footing and for a market that has been beaten with an ugly stick like it has, maybe there is something to it. Again, it is too soon to tell.
I am beginning to wonder if the cattle market is ever going to break down. It bends but does not break. Given the strength in the Dollar and the general trend towards selling commodities, and given especially the continued high price of beef which is even more expensive on the global export markets due to the strong dollar, I wonder how much longer the longs are going to keep coming in and supporting this market. Cattle are perhaps one of the few commodity markets that the longs have been able to make some money in and they seem determined to not throw in the towel, yet.
At this point I am still standing by my view that beef prices are going to be coming down by the 4th quarter and certainly by Q1 2015, but the bulls are flexing some very impressive muscles at the moment. Feeders especially are continuing to defy gravity. I frankly do not know how in the world those guys are going to be able to make the least bit of money buying feeders at these prices to sell next year.
That's it for now - the S&P 500 is on a tear once again and is back above 1990 as I type these comments. The same guys who are apparently buying equities must be the ones buying in the cattle markets because the price action is quite similar - the market will bend but then snap right back.
More later...hopefully....
The greenback has finally managed to push past a key technical chart resistance level near 85 basis the USDX.
While the trading week is not yet ended, if the Dollar can stay above this level noted on the chart to finish it out, I frankly do not see much in the way of further overhead resistance until one nears 86.50 - 87.00. If it does indeed go there, I do not think gold will be able to stay above $1200 as there should be a continuation of the general macro trade jettisoning most commodities should that occur.
The flip side to this is the abysmal showing of the Euro which continues to plummet. Simply put, the Eurozone economic growth has stalled out and its central bank is no where near talking about raising interest rates. That leaves the Dollar with its distinct interest rate advantage, the key factor that has been driving the currency markets for the last 4-5 months.
In looking at its chart, there is a bit of support just below the session low of today. Further down is a zone near 1.2665 - 1.2650. I do not see much in the way of support of any significance if the latter level were to give way. In other words, it is entirely possible that the Euro may see the 1.2000 level. You might recall that during the European sovereign debt crisis, the Euro was plumbing those depths. For TA purposes, that is a double bottom on the intermediate chart. Heaven help that currency if it were to lose that level for any reason!
With the Dollar as strong as it is, one can expect to see gold moving lower, and that is precisely what it is doing.
Here is the recent chart:
Price is attempting to stabilize near current levels; however, the key will be this week's low near the $1208 level. If the bulls can prevent the bears from taking price below that level, they have a change at stemming the bleeding and moving the market into a sideways pattern, halting the downtrend that has been in place. If not ( and especially if the Dollar continues to move higher), $1200 is going to be tested and will probably not hold. We'll just have to wait and see.
Shifting to the grains for a bit - that Corn/Wheat Spread, the one that has been keeping the big specs on the long ( and wrong) side of the corn market, once again failed near the 140 level. That just seems a bridge too far at this point. Corn managed to eke out some gains today as the forecast maps showed a rather large rain event scheduled to hit the corn belt near midweek of next week. That immediately set the bulls yapping about damaged crops, disease, delays in the harvest and the beginning of the Apocalypse. I read where one bullish analyst swore that he saw a Black Horse Rider going through the corn fields of Illinois with a big scale in his hands crying: " a quart of wheat for a denarius, and three quarts of barley for a denarius, and do not harm the oil and the wine".
We'll keep an eye on things but for now it looks to me more like a case where some shorts decided to book some profits on the forecasted rains to wait for a bounce higher to sell it again.
Also, there has been some chatter about increased export demand for US wheat, now that prices have fallen to near 5 year lows. I am interested in seeing if such develops for any reason. There are a significant amount of hedge funds and other large specs who are Long corn, and Short wheat, and if this spread reverses violently, we are going to see some interesting price action in the corn in particular.
I think the strong dollar is going to put a cap on any potential wheat rallies but that assumes that other key growing areas around the globe remain free of weather-related threats. Currently there is a large glut of wheat around but the one thing about that market is that other growing regions have to be monitored.
Wheat started the day on a strong note but lost about half its gains going in to the close. Still, it managed to maintain its footing and for a market that has been beaten with an ugly stick like it has, maybe there is something to it. Again, it is too soon to tell.
I am beginning to wonder if the cattle market is ever going to break down. It bends but does not break. Given the strength in the Dollar and the general trend towards selling commodities, and given especially the continued high price of beef which is even more expensive on the global export markets due to the strong dollar, I wonder how much longer the longs are going to keep coming in and supporting this market. Cattle are perhaps one of the few commodity markets that the longs have been able to make some money in and they seem determined to not throw in the towel, yet.
At this point I am still standing by my view that beef prices are going to be coming down by the 4th quarter and certainly by Q1 2015, but the bulls are flexing some very impressive muscles at the moment. Feeders especially are continuing to defy gravity. I frankly do not know how in the world those guys are going to be able to make the least bit of money buying feeders at these prices to sell next year.
That's it for now - the S&P 500 is on a tear once again and is back above 1990 as I type these comments. The same guys who are apparently buying equities must be the ones buying in the cattle markets because the price action is quite similar - the market will bend but then snap right back.
More later...hopefully....
Tuesday, September 23, 2014
Gold Bounces on Syrian Air Strike News
Looks like the news of air attacks in portions of ISIS-controlled Syria has been enough to spook some of the shorts in gold. After a ferocious wave of short-covering, gold has given back most of its gains for now.
After a near relentless decline, it was perhaps to be expected that any sort of news which might generate some safe-haven buying would run some shorts out of the market.
However, in watching the price action at this point, it does seem that any rallies are going to be viewed as selling opportunities.
Geopolitical events are always good ( generally speaking ) for bounces in gold but tend to flame out as quickly as they begin. We'll watch for now but even the Dollar is barely moving lower. Traders ( except those with the most shortest time frame ) are looking past the current geopolitical concerns and focused almost exclusively on the strong Dollar and interest rate differential advantage it possesses.
More Later.....
After a near relentless decline, it was perhaps to be expected that any sort of news which might generate some safe-haven buying would run some shorts out of the market.
However, in watching the price action at this point, it does seem that any rallies are going to be viewed as selling opportunities.
Geopolitical events are always good ( generally speaking ) for bounces in gold but tend to flame out as quickly as they begin. We'll watch for now but even the Dollar is barely moving lower. Traders ( except those with the most shortest time frame ) are looking past the current geopolitical concerns and focused almost exclusively on the strong Dollar and interest rate differential advantage it possesses.
More Later.....
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.
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.
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:
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.
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