"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 11, 2014

Old Crop August Soybeans undergoing the long-expected short squeeze

Take a look at the following chart of the August bean contract which is currently in its delivery period.

The story here is the historically small old crop carryover or ending stocks. With what is expected to be a massive bean crop this year, strong hands have been holding the beans and refusing to let them go. End users who could not wait for the new crop to start rolling in have been forced to pay outrageous prices for these beans to the point that the bull spreads have run the August to an incredible $2.40 premium to beans for November delivery.

We are going to get reminded of the tightness of those ending stocks in tomorrow's USDA report and that has kept selling pressure from intensifying in the rest of the bean complex. With basis weakening however, it did make one wonder if today might have been the last hurrah for the crushers or those who are having some great fun at the expense of the trapped shorts in the nearby August.

To give you an idea of just how many shenanigans are taking place, August beans closed 30 cents higher today while November beans closed 11.5 cents lower. That is a swing of 41.5 cents in just a single day.

This afternoon we will get the usual USDA crop conditions reports so between those, and the expectations heading into the upcoming report, that will set the stage for what could be some very dramatic price moves when the report hits the wires tomorrow morning.

As I am typing this, the crop conditions reports are now out. For corn, the Good/Excellent condition remained the same this week as it was last week, 73%. The difference however was that the Excellent category dropped 1% while the Good category picked that 1% up.

In the big "I" states, the crop condition dropped slightly in Indiana and Iowa while it improved in Illinois.

The corn crop is 96% in the silking stage which was at 93% last year at this time and the 5 year average of 95%. 54% of the crop is in the dough stage compared to last year's 36% and the 5 year average of 46%. Again, this crop continues to remain ahead of schedule.

For beans, the crop deteriorated slightly moving from 71% Good/Excellent last week to 70% this week. Illinois looks outstanding for beans with 78% of its bean crop rated Good/Excellent. Indiana is at 67% which is down from 71% last week. Iowa is rated 75% Good/Excellent which is actually up from last week's reading of 74%.

Beans continue to remain ahead of schedule on an historical basis with 72% of the crop currently podding compared to 55% last year and the 5 year average of 65%. That bodes well for the crop given the current temps. If anything, with the lack of intense heat this year, some are actually hoping for warmer temps to hurry the crop further along ahead of any potential early freezes. With the crop this far ahead of schedule already, that tends to lessen any concerns that some might have from freeze events that would come earlier than normal.

Some were talking deterioration in the bean crop across the northern growing areas which were drier last week but what I can see from the report, I just do not see the deterioration that some are trying to talk up. Indiana seems to have taken the biggest hit but Iowa actually improved and Minnesota is essentially unchanged. North Dakota only lost 1% point from the Good/Excellent category which stands at 73% compared to last week's 74%, hardly a disaster in the making if you listen to some of the bullish comments. Same goes for Wisconsin which is 70% Good/Excellent this week, down from 71% last week.

Additionally, we have been getting some decent rains across the entire mid-West since the time that those surveys were completed. From where I sit, it still looks to me like the crop is going to be very, very strong. You have no heat stress showing up in the forecasts at the moment and what looks like plenty of both subsoil and topsoil moisture to allow those pods to fill out nicely.

My guess is that traders are going to tread cautiously until this USDA report is out of the way as I just do not see enough from this afternoon's conditions reports to move the market in a big way. The corn is in as good a shape at this time of the year as it has was all the way back in 2004. In other words, this is the best looking corn crop we have seen nationally at this time of the year in a decade.