"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


Tuesday, August 12, 2014

Bloodbath Continuing in the Livestock Complex

Red meat lovers, take a look at the following charts and rejoice... relief from record high meat prices is on the way.

The Russian food ban from the US and Canada ( among other nations) seems to have gotten the ball rolling in earnest but now technical aspects have taken over with margin calls and forced liquidation dominating trade. Producers who were prudent enough to hedge and secure some downside price protection are sitting pretty right now. Those who did not, have let some enormous profits get away from them.

As mentioned previously, those of us who enjoy good Bar-B-Q have suffered through sky-high meat prices so far this year, but relief is on the way!

Combine falling livestock prices with a large crop coming this fall, and energy prices which have taken a dive recently, and one can see the impact on the overall commodity sector as evidenced by the Goldman Sachs Commodity Index.

It was this weakness across the commodity sector today which weighed on copper prices and helped pull silver lower even though gold was able to buck the trend and move slightly higher.

The extent of the collapse in commodity prices over the last six weeks has been stunning. Here is the chart.

It looks like gold is caught in a sort of tug of war between forces springing from the overall sector and upward pressures coming from the mining section.

The HUI is currently quite strong on the charts. As you can see from the chart below, it is flirting with strong overhead resistance near the 250 level. A closing push past this should allow the index to target further resistance near 260. Above 260, there is not much until one gets to 280 or so.

Here is another negative factor:

According to the most recent updated information, GLD holdings have now fallen below the starting level of this year. They were at 798.22 tons at the end of the year and as of yesterday stood at 795.86.

So what to make of this? I think one can make the argument that the gold shares have been the leaders of the gold price both on the way down and on the way up. So far, if I had to pick between following falling commodity prices and falling reported GLD tonnage and the mining shares, I would have to side with the miners. Their track record is very good at predicting future price action in the underlying metal.

That being said, with the negative factors of falling commodity prices, falling GLD tonnage and a stable to rising Dollar, the HUI needs to break out to the upside sooner rather than later to convince enough traders that the move higher in gold is more than a momentary flash. Many of the larger players are obviously moving into the mining shares based on the price action because they apparently feel that the downside is rather limited from this point. However it is difficult to see why some big specs would want to chase gold significantly higher given the above-cited negatives. If the Dollar does finally manage to breakout above that stubborn level of resistance near 81.60 basis the USDX, gold will have to overcome even more headwinds.

The jury is still out therefore. As you can see from the price chart, the level near $1320 is proving to be formidable overhead resistance. Also, the ADX continues to move lower indicating that a trending move is not yet underway but rather that the market continues to move in a range trade. $1280 is the bottom and $1320 is the top within a broader range of $1240 - $1340. Let's see what the next few days bring us.

USDA Report Day

Finally - the big day we grain traders have been waiting for has arrived. As expected with these reports, the market response was immediate and it was furious, especially in the bean complex. USDA left the total acreage number, both planted and harvested unchanged from last month's numbers. Those were at 84.8 million and 84.1 million respectively. Compare that to last year's numbers of 76.5 million planted and 75.9 harvested.

The big factor, as far as the market was concerned, is that they raised the output number from 45.2 bushels per acre last month to 45.4 bushels. That kicked the production number up to 3.816 billion bushels from last month's 3.80 billion.

They left the import number the same at 15 million bushels bringing the total supply, adding in the 140 million bushel carryover, to 3.971 billion bushels. That is up from 3.955 billion in the July report. With crushings and exports remaining unchanged from July, the projected carryover is jumping to a whopping 430 million bushels, more than 3X last year's carryover.

As I have been mentioning this past week, the crushers, or whomever it has been, who have been playing the game with the August bean contract and jamming the price higher, are winning the battle at the expense of losing the war for the farmers who have been watching the price action in that particular month and been led to believe that higher bean prices are just down the road.

Today's USDA numbers did nothing to discredit the notion that this year's bean harvest is going to be producing a huge amount of beans. There is nothing in this report as far as the beans go that would give those looking for higher prices down the road the least bit of consolation. I wonder how many farmers have hedged any expected bean production at this point?

The corn has been a bit different. USDA left both planted and harvested acreage the same as the July report, 91.6 million planted with 83.8 harvested. They did however raise the expected yield from 165.3 bushels per acre to 167.4. I think there was a bit of disappointment that the number was not nearer the 170 bushels that some private advisory services were forecasting. USDA tends to be conservative however and we are therefore going to have to wait until we get closer to the actual harvest and start seeing some actual results before they will push that number higher. Personally I will not be surprised to see the number work higher as the combines roll, especially if the current weather forecasts hold and allow this record crop of some 14.032 billion bushels to finish up without any stress. While the market may have been looking for a higher yield number, and while bulls are trying to talk up the miss in expectations as bullish for the market, it is hard to find anything bullish about a crop of over 14 billion bushels.

I can see buying coming into the corn market as some try to force a bottom based off today's USDA number but I am doubtful that this is anything more than a lull in the coming storm.

USDA did manage to add another 50 million bushels for feed usage, up from 5.2 billion bushels, but frankly I am at a loss to explain that. The cattle herd has been shrinking and the hog herd has been hit by the PED virus knocking its numbers down considerably. Perhaps they are basing this increase in usage on producers feeding a larger quantity of the corn to bring their animals to heavier weights, something that has been occurring with the hogs for certain. With the cattle industry moving away from Zilmax, it could be USDA is also trying to allow for increased corn feeding there as well. We'll have to see how that works out.

Either way, they did show a 25 million bushel increase in projected exports which combined with increases in the other categories bumped up total demand to 13.435 billion bushels from 13.335 billion last month. The result was an increase in total carryover to 1.808 billion bushels compared to last month's projection of 1.801 billion.

To provide a bit of perspective, the past marketing year's carryover is currently projected to be 1.181 billion bushels.

When I look at these numbers for both the beans and the corn, I am growing increasingly concerned about the storage capacity for what is going to be a massive harvest. I can only hope that some farmers have gotten some downside protection on their expected production as I can easily envision a situation in which the supply is going to overwhelm the ability to store it.

A brief comment on the tragic passing of Robin Williams. I grew up watching him and laughing at his incredible wit and rapid-fire ability to roll off one barrage of comic laughs after another without even seeming to need a pause to collect himself. To say that he was talented, is an understatement. He was a once-in-a-generation gift to us all!

 How very sad that a man who could make millions laugh and forget about their own problems for the moment, could have been suffering with his own sadness and inner demons to the point where he would take his own life. In watching interviews of him speaking about the joy he received from watching his children grow, it struck me that they are now deprived of a man who deeply loved them. Not only that, but he tragically deprived himself of their love towards him.

That the form of depression from which he was suffering, could overwhelm such a kind and compassionate man and bring him to the place where he would lose sight of the love of those children and the joy they brought him, as it swallowed him up in its own black hole, is something that should give us all pause to reflect upon. There are so many hurting people in this world, some of which are perhaps very close by to us. A friend, a neighbor, a family member - maybe all they need is a kind word reaffirming what they mean to us or how we appreciate them and value them. It is easy to become wrapped up in our own little worlds to the point where we are senseless to the pain and hurts of others.

I have said it on occasion here that there is more to life than the movements of prices on the computer screen. I sincerely mean that. We do what we do because we want to be able to provide for our families and to have sufficient means left over to help those who might be in need. Life is too short as it is; living it so that we have no regrets on our death bed might perhaps make us all soberly reflect on those things that endure.

I just yesterday learned that a friend of mine has been diagnosed with Stage 4 lung cancer. He is 52 years old, married with children. In talking with him, he told me that he tried to take good care of himself so that he could live a long life. He never smoked, exercised, was not around harmful fumes, etc., and yet he somehow came down with this dreaded disease. Now he has been told he has perhaps 15-18 months to live.

Events like these tend to put things into their real perspective. Markets are what they are and those of us who make our livings live and breathe in them. But after all is said and done, they mean little in the scheme of eternity. What matters is a man's character. One can be wildly successful at trading or investing or whatever, but are those the things that will occupy our thoughts on our death beds? I think not.

Thank you for allowing me the opportunity to just give voice to some thoughts about these things.