"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 3, 2014

Bean Harvest Wrapping Up

The USDA Soybean harvest progress report was out this afternoon and it showed some hefty progress was made last week. Bean harvest as of the past weekend was at 83% compared to 70% last week and 85% for the same week last year. The five year average is 83% so it is dead on schedule.

The story essentially remains the same as last week... harvest progress out in the western regions of the Belt was very, very strong.

Iowa is at 91% complete, compared to 81% last week and 94% last year but it is also now ahead of the five year average of 90%. Minnesota is essentially done at 98% compared to 94% last week and 95% last year. Its five year average is 91%.North and South Dakota, along with Nebraska, are wrapping up as well. In short, the western part of the Belt looks great.

Just like last week, it is the eastern part of the belt that is lagging. However, very good progress was made last week in Indiana, which jumped up to 70% complete compared to only 50% the previous week. The five year average there is 87%.

Ohio also made good progress jumping from 50% the previous week to 72%. That compares with last year at 90% and its five year average of 83%.

Illinois had a nice ramp up as well with 83% now harvested compared to only 63% last week. Last year it stood at 91%. The five year average is 84% so Illinois has really made up some ground and is now essentially right where it ought to be.

Based on these numbers I find it hard to believe that we are going to continue to hear issues about "meal shortages" much longer. The beans are going into the bins and the crop is very large. As the harvest winds down, more trucks should become available to move meal that is produced as crushers have incredible margins right now in the beans with the heavy buying jacking the crush to some quite profitable levels.

It would not surprise me one bit to hear talk going from "meal shortages" to "meal gluts" sooner rather than later. The tightness in transportation will eventually clear up and the product is going to move.

Switching ever so briefly to the corn... the harvest is 65% complete compared to 46% last week ( farmers have opted to go after the beans and leave the corn for later) but is catching up to last year's pace of 71%. The five year average stands at 73%.

There does not seem to be a standout feature in the report as to a clear cut difference between the eastern and western portions of the Belt. I should note that Illinois is essentially tracking its five year average of 78% with this week's 77% complete.
Iowa and Indiana are lagging with the former at 58% compared to its five year average of 75% with the latter at 58% compared to its five year average of 70%.

This is perhaps the reason that the funds have been able to jam corn prices off their worst levels right at the closing bell both last Friday and today. The trade is waiting for a larger percentage of the harvest to come in before they begin to get aggressive on the hedging but I look for that to pick up this week. Opposition to the hedge funds and other large specs is building between $3.80-$3.70.

The forecasts show some moisture in the belt but the amounts forecasted vary. Also, some regions look to see sunshine and clear weather, but colder temps on the way. Depending on location, farmers will have some open windows available to get some more done before next Monday's reports.

Unleaded Gasoline Strikes Fresh Four Year Low

Could we possibly see a "1" handle on the price of unleaded gasoline before the year is out?

I don't know but I can say that the chart shows a region of congestion between today's session low and the $1.80 level.

Wouldn't that be something?

Crude Oil Price War Stirring?

I sure think so... What I am referring to is the move by Saudi Arabia to CUT its oil price for oil sold to the US while raising its price to other countries, notably in Asia.

There are some analysts who are downplaying the move as only an attempt by the Saudis to maintain US market share but I think not. I think they are going after the US shale industry.

This is rather interesting if you ask me because of the impact on Russia as well.

Either way, the cut in price by the Saudis has oil traders thinking along a common line right now and that is burgeoning supplies. Economic growth is just too slow to burn through all of the oil that is accumulating.

The impact of falling energy prices should not be underestimated. It does two things:

1.) It benefits consumers and businesses with heavy energy usage such as those in the Transportation sector
2.) It harms the one bright spot in the US economy, namely the energy industry and the companies associated with production, exploration and service to some extent.

I might also mention something more along the psychological front - it feeds the DEFLATION psyche. Look at the plunge in the commodity indices today. Given that sort of environment, gold is going to continue to fall out of favor. Why buy a metal that throws off NO yield in an environment in which commodity prices in general are heading lower?

Here is a chart of crude oil...The black liquid hit a 2+year low today.

If it breaks the support level noted on the chart, we could see another $2.50 break lower from current levels. I also want to remind the reader that based on the most recent Commitments of Traders report, large speculators still remain heavily long in this market by a more than 3:1 ratio.

Just like they are in gold, they are caught on the wrong side of a plunging market meaning the resulting money issues at work will tend to keep the price depressed as rallies are viewed by losing sides as opportunities to get out and cut their burgeoning losses somewhat. It is all about reducing the pain at this point.

Japanese Yen Succumbs to BOJ Wishes

It is no secret that the monetary authorities, as well as the political leaders of Japan, want to see a weaker Yen. The current Japanese leadership is desperately trying to stave off a deflationary wave that has held the nation in its iron-fisted grip now for what seems like an eternity.

The entire idea behind the attempts to take their currency lower on the crosses is to ramp up inflationary pressures associated with a falling currency ( that is a subject matter that requires a post of its own ) and to somehow turn the Velocity of Money higher by getting people to spend now and incur more debt now rather than wait for lower prices to spend later.

The Yen is therefore one of those LONG TERM macro trades that many hedge funds are interested in playing ( much to the delight of the Japanese leaders). It has however been an extremely difficult trade at times to remain in if one is short simply because the Yen can experience some violently sharp rallies anytime there is a rush away from risk and into safe havens.

With ultra-low interest rates in place as far as the eye can see, and with a clear signal from the authorities there in Japan, the temptation to use the Yen as a funding currency for a highly leveraged CARRY TRADE is just too great to pass up by some very powerful speculators.

However this huge macro trade will see very swift reversals whenever FEAR RISES or equities plunge. The size and scope of those carry trades is enormous but the fact that they are heavily leveraged means that losses can quickly accrue if the leveraged positions move the other way. As a result, one will see the yen shoot up rapidly when stocks are selling off. That is simply the sign that the carry trade is being unwound during that time period.

For the trader who is interested in catching a trend, this currency is one that looks to be firming up and asserting itself once more but one must understand , and be prepared, that any of these "risk aversion" episodes can punish you quite severely.  It is therefore not for the faint of heart nor for the poorly capitalized trader.

I have noted some technically significant levels on the long term monthly chart. As you can see, the Yen has plunged rather dramatically the long two months and has begun the trading month of November down sharply as well. But look at the big spike it made in last month's trade before closing out on the lows last week. It was a 500 point move ( please note I am using CME reporting and not the usual Forex reporting and I have dropped out the decimals). That is very tricky to sit through if you are short and are watching "your life passing in front of your eyes" type short covering rallies.

The plunge in September took it down through chart support which was followed by a rally back up to that broken support level ( that then served as resistance) followed by a plunge lower. As you can see on the chart, the Yen can make some rather steep, unidirectional moves at times so the idea of "overbought" or "oversold" are not especially applicable when it comes to this currency.

Here is the one of the things to note about this - the Yen comprises almost 14% of the weighting of the USDX. While obviously not near as great a weighting as the Euro, continued weakness in the Yen does tend to feed into the current trend of a stronger Dollar.

A stronger Dollar here in the US tends to have a deflationary impact on commodities and serves to keep inflation at bay. I said all this to say that a weaker yen may very well tend to feed weaker gold prices here in the US.