"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, June 23, 2014

Copper Smiles at China Data; Soybeans Likewise

Today seemed to be a relatively quiet session ( by recent standards of comparison) in many markets. An exception might be noted in the Cattle markets where those moved higher on last Friday's friendly Cattle on Feed report and corn, which moved smartly lower as traders gauge the impact of the heavy rains that have fallen across many area of the Farm Belt.

There is some concern about excessive rainfall across a strip that includes parts of South Dakota, southern Minnesota and northern Iowa but I personally feel those concerns are way overrated. Yes, if one has crops in that area, it has been too wet but when you look at the total corn belt, this moisture is producing some very good stands of corn.

Under normal circumstances, these good rains would have produced selling pressure in the soybean market as well, but for some odd reason, that pit, which has taken on quite a schizophrenic nature for the last few weeks, decided to focus on news out of China that showed HSBC's manufacturing purchasing managers index activity at a seven month high at 50.8. This was up from 49.4 in May and the first time that the index has been above 50 this year. Recall that a reading above 50 is considered to be expansionary.

Traders decided that demand was the proper place to therefore focus on the bean equation believing that this will somehow generate more bean demand from China. I fail to see the connection between any of this and soybean demand but hey, bean traders are not the brightest bulbs on the planet. That being said, I have essentially given up on trying to guess which mood those guys in that pit are going to be in on any given day.

Copper definitely liked the reading however (which makes perfect sense given its use in manufacturing) and responded by moving higher today. There looks like there might have been some of those copper/silver bear spreads unwound on the news. The Red Metal has now gained $0.10 pound over the last seven trading sessions. For now, the metal seems to care less about the double and triple counting mess going on over in China. Yellen sparked a rally in the metal that began last week and the overnight Chinese news has done nothing to discourage those who want to be bullish copper.

I should note here that some flash estimate for June's Euro-Zone purchasing managers index are out. Those have come in at 52.8 but the data is still rather mediocre. The French reading has their PMI declining to 48. Germany also registered a bit of a decline to 54.2, which is positive but went in the wrong direction.

Interestingly enough, Markit's survey of that data showed the largest monthly increase in input costs since November. The biggest contributor however to this has been rising crude oil prices. This crude thing really needs to be watched closely, not only over there in the Euro-zone but globally, because at some point traders/investors are going to begin worrying about high crude oil prices choking off and restraining growth rather than contributing to inflationary pressures. I just do not know at which price level the shift will occur.

Let's shift back over to the grains however as we are getting the Monday afternoon Crop Condition ratings.

Corn is rated at 74% Good/Excellent with 21% Fair and 5% Poor. The Good/Excellent rating last week was 76%. The slight drop was due mainly to wetter than normal conditions mentioned above in Iowa, Minnesota, and South Dakota.

Illinois and Indiana corn crops got even better looking however offsetting the slight deterioration above. Last week Illinois was rated 75% Good/Excellent; this week it is rated 78%. Indiana, last week, was rated 72% Good/Excellent. This week it improved to 74% Good/Excellent. Looks to me like a toss up - if the heavy rains ever let up in those few problem areas, and we get some sun in there, that moisture will greatly benefit the crop should the conditions turn hot and dry into July for any reason. You have to consider nitrogen leaching in those excessively wet fields but traders should also be looking at the crop as a whole. That is what they did in today's session and that is the reason that the selling was so heavy. There is nothing on the horizon at this point to provide any evidence that the crop is in any kind of serious harm. Growing conditions thus far look good.

Soybeans are rated at 72% Good/Excellent with 23% Fair and 5% Poor. Last week the Bean crop was rated at 73% Good/Excellent. The slight bit of overall deterioration seen is in the same states noted above where the corn declined.

Soybean planting is 95% complete compared to last year's 91% and the five year average of 94%. Beans are 90% emerged, compared to last year's 79% and the five year average of 87%. The crop is certainly ahead.

The conditions ratings come as no surprise whatsoever to grain traders who have been noting the heavy rains in that one region for a while now. That being said, outside of that one area, it still looks like we are going to harvest a big crop. Now if we can just get through the July 4th holiday without any major heat scares. Beans have to be concerned about August more so than July, but it stands to reason that a benign July, with decent rainfall, is going to put the beans in good shape to enter August. As usual with the grains at this time of year, all eyes are on the weather forecast maps.

Also - briefly - wholesale beef prices just shot up today to being a wee-bit shy of the record set back in March this year. Wholesale pork prices are also knocking on the door of the record set in April. In other words, do not look for any relief in high meat prices this coming July 4th holiday! As mentioned many times here this year, it is going to be later in the 4th quarter and into Q1 2015 before we consumers see some relief from these sky high meat prices. I am watching for signs of "Fresh Fish" stands on the roadsides! If Forrest Gump and his pal Bubba, still had their shrimp fishing fleet, they would both be doing quite well right now as consumers look for alternatives/substitutes. My July 4th party is going to be definitely smaller this year with fewer friends being invited!

A quick look at the mining shares as evidenced by the HUI - Bulls, powered by Yellen's comments from last week (which feeds Dollar weakness and lower rates)  and continued nervousness over events in Iraq, have pushed the miners further away from that 200 level. There does not seem to be too much in the way of overhead resistance on the chart to this move until one nears 244-245, with heavier resistance coming in near round number 250. The mining shares continue to lead the metal higher, which is exactly what one wants to see when gold prices are moving up. Say what one wants to about those mining shares, they still, lead the gold price, whether it is up or it is down.

It should be pointed out that GDXJ chart, has shown a bit more hesitation than its cousin listed above over the last couple of trading sessions. Both indices registered strong gaps higher last Thursday but the junior's index actually has lagged the larger-cap HUI since then. The juniors are obviously more of an indication of risk sentiments towards the overall sector so bulls will want to see the latter index outrunning the HUI. Let's watch the gaps on BOTH of these charts.

Gold meanwhile continues to flirt with $1320 and while it has not been able to push convincingly past this level, it is also not retreating very much either. Some light profit taking by longs is occurring, as well as some shorting from some bigger players, but buyers are also stepping up as the price sets back. Dip buying is something that one wants to see if sentiment has indeed shifted from one of selling rallies to one of buying dips. We'll see how things go the remainde of this week.

Referring back to that Saturday post I put up detailing the very large spec long side exposure to crude oil, I am keeping a close eye on its price action. It has not yet been able to penetrate resistance near $107.50 but looks like it has stalled out here for the time being. I am not yet picking up any negative divergence signals but given the massive long positions in this market, it may not generate one before undergoing a downside correction in price. So much hinges on geopolitical developments and as we have said many times here, such things are very fickle and quite fluid by nature and as such, markets can react violently to changes, or even perceived changes, with little to no warning whatsoever. Sentiment towards this market is very lopsidedly bullish but the trend is still strong. It could very well be a market that is just resting before kicking off another pop higher. I do not know but am watching it very, very closely.

It is noteworthy that crude has been temporarily halted not far from the Fibonacci retracement level noted on the chart. That came in near $107. Today it fell back below there once again. The market has been able to breach the level but cannot maintain itself ABOVE the level. If you notice, it did pretty much the same thing with the 61.8% level in late May and into early June before it was able to keep its footing above that level. That is what I am watching for right now.

I should note however that the XLE stayed firm today, in spite of the lower crude oil price.

One final note - I again wish to thank every single one of my readers out there for your very helpful and constructive comments and kind words in response to my solicitation for your input in regards to this blog. It was so very encouraging.

I have decided to go with the Donate button as a result. Now, all I need to do is to figure out how to do this!