"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, August 25, 2014

Old Crop Beans Finally give up the Ghost

While it is a bit premature to say that the fun in the old crop beans has come to a close, the price action today speaks volumes. We've all known that those who were chasing beans higher were beginning to realize that there was no sound reason to pay the kinds of prices that they have been dishing out for them, when the combines have already begun rolling in the Delta. Tight-fisted holders of those old crop beans have to be aware that they were about to get crushed in a basis collapse. The deal was however, that it became a matter of not if, but WHEN, the party was going to come to an abrupt end. We might have seen it today.

Basis levels are still incredibly strong but all that means is that the cash market is doing the work of pulling that old crop out of storage to make room for the incoming harvest. There will probably still not be any big deliveries against the September contract come first notice day ( this Friday ) but that does not mean we will not see further volatility in that month. I for one would be surprised to see any deliveries given the steep discount to the spot markets in the September. However, as the delivery period moves forward, if the basis begins to do what many of us expect it to do, one might very well see some deliveries begin to emerge. We will have to wait and see. Either way,  I am beginning to think it really does not matter all that much to the futures market at this juncture. I am however, staying open-minded about this situation since it is unprecedented.

This is what makes predicting FUTURE prices and timing such an enormous waste of time. Everyone was just convinced that we would see no weakness in the September bean contract whatsoever going into the delivery period. And yet, we had a negative downside reversal day in that month posted in today's session. Whether we get any additional downside in that month remains to be seen as of yet; however, I do not think many expected to see what happened in there today happen so soon.

AS a side note - this is why people making constant dogmatic assertions about the gold or silver price should be completely ignored. They no more know where the price is going and when than does the proverbial man in the moon. The problem with too many of them is that they believe their own BS.

Back to the beans however. Here is the price chart: Look at the huge range ( nearly 70 cents from high to low). They don't call beans the widow makers for nothing.

The grains were weaker across the board today as good rains, and warm temps ( at least not excessively blazing hot ) are making for ideal finishing conditions for the crops. Also, the rains hit the areas in the Belt that were coming in a bit on the dry side. that essentially alleviates any concerns in those regions from further deterioration due to dryness issues.

In looking over the Soybeans Conditions ratings, the Good/Excellent category fell to 70% from last week's 71%. However, Illinois, Indiana and Iowa, all showed either improvements in that category or remained unchanged from the previous week's numbers. Minnesota actually improved from 64% to 66% Good/Excellent! Wisconsin added a point to that category. North Dakota jumped 3 full points. It looks to me like Kansas was the state responsible for pulling the overall national ratings down more so than any other state. It's Good/Excellent rating fell 5 full points to 48%.

I do not think of Kansas however when I think of beans so I am not sure if the market will pay any attention to the slight 1% deterioration overall. The fact that the biggest growers of beans all either improved or held steady is more important in my view.

Also, the % of the crop setting pods is at 90% compared to last year's 82% and the 5 year average of 89%.

turning to corn, this is remarkable - 73% of the crop is rated Good/Excellent compared to 72% last week. It actually improved! The thing about corn which is interesting is that as it moves closer to harvest time, the overall appearance of the plant tends to become more ragged as the energy is going into the ear, and not the leaves. That is what makes this week's rating even more impressive.
The Illinois crop actually got better, which is hard to believe given its already incredible condition. It is now rated 82% Good/Excellent up from 80% last week. Iowa held steady at 75% Good/Excellent as did Indiana at 73%. Minnesota showed a big improvement jumping to 71% from 68%.

As far as progress goes, 83% of the crop is in the dough stage compared to 67% last year and 78% over a 5 year average. The crop seems to be a bit behind when it comes to denting however as it is 35% compared to 21% last year ( ahead) but 43% (behind somewhat) for the 5 year average.

The Euro continues to fall apart as it broke below round number support near 1.3200 and looks to be on course for a test of 1.3125 - 1.3100.

The Dollar continues to look impressive on the charts. It made its first foray into resistance territory noted on the chart and then pulled back slightly but the trend still looks bullish.  This is all the more revealing when one considers that the yield on the Ten Year Treasury has been declining lately.

I put these two charts up together because I am of the view that gold is going to struggle to maintain any sort of strong, sustained move higher in this environment. The Dollar is moving higher in anticipation of higher interest rates even as the yield on the Ten Year is descending. I have no idea when the Fed might be able to actually raise rates but markets run more on expectations or perceptions than they do on CURRENT realities at times. If the big specs are becoming more and more convinced that rate hikes are on their way next year, they are going to need some other very good reason to tie up investment capital in gold, which throws of no yield and depends entirely upon capital appreciation to record any gains for its buyers.

Please do not misunderstand what I am saying here ( I can already feel the wrath of the gold cultists ). The metal will draw buying support from geopolitical or economic uncertainty but such buying in and of itself is insufficient to launch a strong, SUSTAINED bull market. That requires big speculators chasing prices higher and willing to commit to it in a big way. Right now, I see no evidence of such sentiment when it comes to gold, especially given the strength in the US Dollar and the general weakness in the overall commodity sector. Perhaps it will take place in the more distant future but as far as the shorter term horizon is concerned, gold is not in favor at the moment among those seeking capital appreciation.

Turning to the gold shares, the juniors' index is still stuck going sideways. It is having difficulty attracting any concerted buying near 45 and beyond. It looks like those who want to own the things are okay with accumulating them at this point but they are not the least bit interested in paying up for them. Again, there are very few momentum based buyers in this sector at the moment.

 I will leave you with one last chart, and it is a doozy! Fighting that powerful uptrend has been a thankless ( and often profitless ) task! Only the very quick on the draw have been able to pull much out of the short side of this market.