"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


Wednesday, August 20, 2014

New Crop Beans Set New Low

Excellent growing weather for the month of August ( ample rains and no excessive hot temps) are leading to ideal finishing conditions for the bean crop. Reports from the field indicate a big crop which is probably going to get bigger as USDA revises its regular updates as we move closer into the harvest season.

It has been the same old story about tight carryover stocks from the 2013-2014 crop that has kept this market supported but even that now appears to be giving way to reality.

Today's move lower in the November contract has set a new low for this extended bear market not only in terms of the low made but also the closing price.

At this stage, bulls have little to bolster their argument for higher prices except to pray for an early September hard freeze.

Is that possible? Sure it is - anything is possible when one talks about weather but farmers with new crop who have not secured anything in the way of downside price protection are literally playing with fire at this point.

Today's FOMC minutes definitely took on a more hawkish tone with even the doves moving more to the center. That is how it should be when a consensus begins to slowly emerge among those with some differing opinions. More and more it is looking as if the Fed is going to be moving on the interest rate front sooner rather than later. Again, this is not to suggest that we are going to see longer term interest rates spike; what it means is that barring any sort of economic downturn, these ultra low rates are a thing of the past at this point. So enjoy them while you can.

Geopolitical events could still induce safe haven flows into bonds and that will work to lessen any severe upside rate movements but it does appear at this point as if the die is cast.

I came away from reading those FOMC minutes with the view that the Fed is anxious to get back to a more normal monetary policy stance.

If this is indeed true, it is hard to make the case for a weaker Dollar given the weakness in the Euro Zone and in Japan when contrasting the overall economic footing of the three respective zones.

In such an environment, commodity prices are going to struggle as an asset class. Individual markets will then have to rely on their own specific set of fundamentals to move higher, but that is how it should be. These macro plays where hedge funds and other large investors buy blindly across the entire gamut of commodity markets tend to greatly distort prices. That eventually leads to an oversupply as those sectors respond to the higher (speculative induced) prices by increasing production. The result is a sort of Boom/Bust cycle that takes place. I think we are seeing some of that right now.

Euro falls below 1.3300

Here is the weekly chart of the Euro...

There is support near 1.3250. If that were to fail, it could easily lose another full point.

We might see some volatility when the FOMC minutes hit the wires later today.

The weekly trend however is down.

And now the Chart of the Dollar:

The weekly trend is higher. It has some light resistance near 82.50 with stronger resistance just shy of the 83 level.

Unless we get some sort of surprise out of the FOMC minutes or Yellen's testimony this coming Friday, it seems that the most likely price action in the Dollar is more of a steady grind higher. I do not see anything on the chart which might be suggestive of a sharp surge higher. That could change however if the market believes that higher rates are coming here in the US sooner rather than later. I for one would be surprised to see such a line of thinking but one never knows.

Suffice it to say for now, a stronger Dollar is not conducive to rising commodity prices in general.

Along that line, the GSCI moved higher earlier in the session on the back of higher crude oil prices but has now surrendered most of those early gains as crude fades somewhat and as grains and livestock work lower.