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.

Speculators Remain Net Long as Gold Drops Lower

I picked the headline because I wanted to add the following: "And are losing money".

I am attaching two charts to this short post. The first is the overall COT positions from today's report.

Take a look at the lines reflecting the positions of the various groups of speculators. Note that all three groups, the Hedge Funds, the Other Large Reportables and the Small Specs or general public, all remain NET LONG in gold. And guess what - they are all losing money.

Also, what concerns me is that based on this Friday's report, there are still more than a considerable amount of these losing positions left to unwind. As of the close of trading business on Tuesday ( the day through which the weekly report covers ) the price of gold was $1236.70. As of the close today, it was $1216.60 or another $20 lower. There is no doubt that the breach of downside chart support levels has taken out more of these spec longs, but the question is how much pain can they endure, especially when margin calls begin mounting?

The next one is a close up of only the Hedge Fund positioning in relation to the gold price.

What stands out to me is the fact that most of the hedge fund longs are now underwater in a bad way. This is the category in particular that can really move markets due to their sheer size and the amount of firepower at this disposal. They are running, of that there is no question. What IS the question is what is their threshold for tolerance of pain.

Some will hold on until or unless $1180 is broken. Some will exit if psychological support near $1200 collapses and gold then changes handles once more from "12" to "11".

Also, I am not taking into consideration that many hedge funds are now moving more to the short side of the market.

Look at how quickly they moved over to the short side of silver and look at what they have inflicted on that metal. They broke it down below $18.60, then $18.00 in no time flat.

Switching gears just a bit... here is the US Dollar index chart. King Dollar is definitely back once again! The greenback put in the BEST WEEKLY CLOSE in more than 4 years, 51 months to be exact!

In looking over the chart, I do not see much in the way of overhead resistance until near the 86.50 region. If the Dollar does not receive some sort of negative news from some quarter, further strength bodes ill for the precious metals.

On a closing note for now, today's Cattle on Feed report was a tad on the negative side with placements coming in a bit higher than the market was looking for. It should be pointed out however that the placements number in and of itself, is the smallest number since 1996. So even though the number was larger than what the market was expecting, we are still not exactly being swamped by an excess of feeders.

Cash trade did break loose this afternoon at $1.59, which was down from last week. That is still higher than October cattle are trading which remain at a discount to the cash markets; however, the lower cash and slightly less friendly COF report might bring a bit of selling into the market early Monday morning. We shall see as trading those reports can be notoriously vexing at times.

One last thing - the weather forecasts out through the end of the upcoming week, show nice, warm, dry weather - excellent for harvest in those areas where the combines are rolling and for finishing the crop up in the more northern latitudes.

New crop corn and beans are already flowing into the pipelines and that is being reflected in the basis in those areas where harvest is ongoing.

Grain Markets coming to Grips with Reality

There are two factors that are now finally becoming begin to seriously take hold among those who kept insisting that grains would experience a bounce higher. The first of these is the sheer size of the upcoming harvest. The latter is the strength in the US Dollar.

Early harvest results are rolling in and they are impressive! With forecasts calling for warm and mostly dry weather, harvest progress will continue as the combines move north. As the actual results are known, traders are realizing the old adage that, " a big crop gets bigger".

All three grains/beans are lower this morning with beans looking like they are accelerating down. I am most interested in seeing this afternoon's COT reports on the corn because I want to see if any of the large specs ( hedge funds and other large reportables) are still net long corn or if they have whittled down those positions any.

My concern for corn is very simple - IF, and this is a big "IF", that just-mentioned group remains as sizeable net longs, corn is in danger of having more downside than many are currently thinking. The reason? Those guys are going to have to get out of those losing longs.

Now, even if they are spread against wheat, and so far that spread has been performing admirably with wheat fundamentals even more poor than those of corn, lifting those spreads entails a lot of corn selling that will be hitting this market at some point.

Here is a picture of the spread:

As you can see, it has been a most profitable strategy. If the spread moves too much in favor of corn however, livestock feeders will switch over to wheat. The spread has not moved much over -$1.20 with some resistance near -$1.40 so one wonders how much more upside this spread has.

Here is the wheat chart: Talk about ugly! It hit a 51 month low this week. Even at that, the thinking is that US wheat prices are still not low enough to attract solid export business due to the global glut and the stronger Dollar.

And now for corn - again, one ugly chart; however, beauty is in the eye of the beholder and for livestock and poultry producers, this chart is a thing of wondrous beauty!

That brings me back to the commodity complex as a whole. This week's FOMC statement and its hawkishly construed message, has sent the Dollar higher and the commodity complex as a whole, lower.

With the index moving lower one can expect to see both copper and silver heading down and that is exactly what both are doing. Copper is clinging to support near and just above the $3.06 level while silver crashed and burned through the $18 level. If silver cannot recapture that level quickly, a test of $17.50 - $17.35 is its next stop. Below that and things get very ugly as it could easily fall below $16.00.

As for gold, as you can see on the chart, it is clinging for dear life to the bottom of the support band noted. Based on what I can see from this chart, there is little in the way of further support until one gets back down to the former double bottom low near $1180. There is only what I view as "psychological" support near round number $1200 but I suspect that will not hold if the Dollar index runs past 85.50. If gold does manage to get down to near $1200, Asian buying will no doubt be active but it will be insufficient to sustain the metal if Western interests become aggressive sellers. Along that line I am closing watching reported GLD holdings and to some extent, the action in the gold mining shares, which incidentally, look very heavy at the moment.

We have a cattle on feed report due out this afternoon which will give us some further insight into the state of the US cattle herd. One wonders how long cattle are going to be able to buck the general selling trend being seen across the rest of the commodity complex, especially with high-priced US beef rapidly pricing itself out of the export markets. Feeder cattle also continue to defy gravity as cheap corn and abundant pasture spurs buyers to pay these outrageously expensive price for available animals. That being said, these kinds of prices, given what the board is showing for spring and summer cattle prices, are essentially guaranteeing losses to feeder buyers. One wonders how long that can continue. For now cattle bulls, especially in the feeders, are vigorously defending their positions. They seem intent on not surrendering and have the money to back up their stance it appears.

A week from today we get the quarterly Snout count or the Hogs and Pigs Report. That is always a lot of fun.

By the way, with the Scottish vote coming in a resounding "NO" in favor of independence, it was interesting watching the action in the British Pound last evening. As the first results started rolling in favoring remaining in the Union, the Pound began to rally. However, after the final vote was tallied the currency began to slowly relinquish its gains and is now firmly lower. This is a matter of "buy the rumor, sell the fact". The forex markets have an uncanny ability to predict election results as the Pound began rallying earlier this week AHEAD of the vote. Currency traders were clearly voting with their pocketbooks that the vote was going to be one of staying in the Union. Once the vote was cast and the results tabulated, there was no other reason to buy the Pound so down it went against King Dollar.  We are firmly back to trading interest rate differentials it would seem.

Gold Losing Ground in Other Assorted Currencies

Some of the long time readers will know that I like to check the charts for gold, when priced in terms of the other major currencies, to get a sense of how the metal is doing when viewed from outside of this country. Since it is an internationally traded commodity, it makes sense to compare its performance to see whether there is a general global trend in the metal or whether it is diverging from such a trend depending on which currency it might be priced in. This helps us assess overall global sentiment.

With the big Scotland vote in the headlines, I thought it might behoove us to see how the metal was faring in terms of the British Pound. I understand that more than a few Scots fear for their life's savings and were pulling money out of banks just in case. One would think that gold would be a likely recipient for some of that cash.

However, in looking at the price chart, it is rather lackluster ( and that is trying to be kind) as the metal has actually BEEN FALLING ahead of the vote. Not exactly a VOTE of confidence ( sorry, I could not resist the pun) in the metal from what I can see on the chart at this point.

There is chart support near 740 and on down in increments of 10 pounds. If the metal were to lose 720, it would constitute a breach of a major support level.

Here's Euro Gold - a bit better looking chart but is mainly because the Euro has been so weak. That being said, it is range bound and moving lower towards the bottom of the range near 920. For Euro gold to have any chance of a sharply higher move, it will have to clear 990 with the 1000 mark more preferable to get any serious excitement underway.

Here is Yen Gold:

Again, the chart is much better than that of Dollar priced gold but this is a function of how poorly the Yen has been performing on the Forex markets against the Dollar. Remember, the weaker a currency is against the Dollar, the more expensive gold is in terms of that currency. The stronger a currency is against the Dollar, the less expensive gold is in terms of that currency.

That is the reason that gold remains ABOVE the 2013 ending price for all three currencies. All have been weak against the Dollar this year. The British Pound had actually been holding its own against the Dollar until just recently.

Gold bulls can gain some bit of comfort from the above. At least the metal has not been falling apart across the global currency front.

I would keep an eye on the gold shares to see if they sense anything as far as a possible bottom. I do wish to remind the reader however, a market may bottom without beginning a sharp reversal to the upside. All it may do is meander sideways within a lower range.

Gold in US Dollar priced terms is in a short term downtrend but remains mired within that broad trading range I have been noting for some time now. In other words, on the Daily Chart it is TRENDING LOWER but on the intermediate time frame, it is still trading sideways above $1180. If $1180 goes for any reason, this market is in serious trouble.

Silver Chart ( by Request)

Here is a look at the weekly chart of silver which has already fallen below chart support near $18.60 and thus far has not been able to regain its footing above that key level.

Note that the indicator below the chart has made a new low for the year which is suggestive of further downside yet to come. The key will be whether or not the metal can stay above $18.00 which is the next level of chart support. If not, it looks headed for a test of the bottom of the 2010 congestion zone near $17.50.

A weekly close below $18.00 would suggest the beginning of a TRENDING MOVE LOWER.

GLD continuing to disgorge gold

One of my main metrics for measuring the intensity of Western-oriented investment demand for gold is the giant ETF, GLD. When gold prices are rising alongside of rising reported holdings in GLD, it is a positive sign for future metal prices. When prices are falling, alongside of falling reported holdings, it is a negative sign for future metal prices.

Today's reported holdings dropped about 4.2 tons bringing the total to 784.22 tons. That is a mere 7.3 tons above the lowest level posted this year back in May. 

One can speculate whether or not the holdings with set a new low for the year as we move ahead but in my mind, it is indisputable, that investors continue leaving gold and buying stocks, as that is where the gains are to be found.

I think it also essential  to remind the more technical analysis-oriented investment/trading crowd out there, that the large speculators (hedge funds and other large reportables) still remain positioned on the NET LONG side of this market. That is based on the most recent Commitment of Traders report. As these key technical support levels on the charts give way, those positions are increasingly underwater and are being liquidated. It is that long side liquidation, coupled with an increasing short side contingent, that raises the very strong possibility of seeing gold change handles from "12" to "11" once more.

Time will tell.

FOMC Statement sends Dollar Higher, Gold lower

The big thing that traders are taking away from today's much anticipated FOMC statement is the $10 billion further reduction in QE which is now down to $15 billion/month. Of that remaining $15 billion in QE, $10 billion consists of Treasuries and $5 billion of MBS debt. The Fed is on track to wrap up QE completely next month and that is what has traders pushing the Dollar higher and gold lower. Simply put, the era of abundant liquidity here in the US appears to be over. Note to QE taper deniers- you had better wake up in a real hurry. The market is telling you clearly that it believes the Fed.

Not that the Fed is in a hurry to raise short term interest rates. That still does not look as if it is going to happen any time soon.

What it therefore translates to as far as traders are concerned, is an environment in which low inflation still appears to be the general rule and one in which economic growth will be slow to moderate at best. This means that stocks are still the place to be; gold is falling out of favor even further, and commodities in general are going to be moving lower.

Not that they will not be exceptions to this general rule based on the individual set of fundamentals governing each specific commodity market. However, the big leveraged macro trade buying indiscriminately across the entirety of the commodity sector is not in the cards for now.

The result of this readjustment is that the Dollar remains the "Go-To" currency which can be easily seen in the steep plunge in the Yen, Euro, Swiss Franc and Australian Dollar ( the Aussie is a good proxy for commodities in general). The British Pound is getting a bid of a respite as traders are afraid to push too hard on it with the upcoming referendum over Scotland tomorrow looming.

With the Dollar/Yen hitting a six year high, the story is that the currency markets are going to dictate money flows and for now, those flows are into equities and out of commodities, including gold.

I have a full plate right now but here is a quick updated chart of gold for the reader. Notice that it is poised for a test of the last remaining support zone standing between it and the psychological $1200 number. That zone extends from near $1220 down towards $1212. If it fails there, it is going to test $1200. Below that is the low at $1180. Below that? That is scary.

India/Asia may be buying for festivals, etc. but that in and of itself will not be enough to launch gold higher on any wild surge higher before the year is out; not without Western oriented investment demand which has made the vote against gold for the time being.

One more quick chart - the US Dollar... If the Dollar closes through 85 basis the USDX by this coming Friday afternoon, look out above!