"People have an annoying habit of remembering things they shouldn't."
- Christopher Paolini
Commentary
Today's upset in the uptrend was more obvious in soybeans, as traders have priced in a fair amount of crop losses with record prices. Rains could be a salvation for bean crops, but each day it doesn't rain that salvation dissipates. Traders acknowledge US soybean production has no room for error in 2012, with US inventories already forecast to dwindle to precariously tight levels by 2013. The issue for US crops is that areas in the western Midwest that were counted on to offset yield losses in the eastern Midwest are now under stress as well. "No serious relief from drought conditions is on the radar for the U.S. corn belt," said Drew Lerner, meteorologist with World Weather Inc. There is a risk of some periodic showers, but not enough to turn around the damage inflicted on crops in recent weeks, Mr. Lerner said. The western Corn Belt will experience some seriously hot weather this week, with no appreciable rains on tap. "This pattern could stay intact for the rest of the summer," Mr. Lerner added. The US is the only source for world soybean supplies until South America harvests its next crop in 2013 and prices are rallying in an effort to ration demand, as unlike corn, livestock feeders don't have a lot of alternatives for a good source of protein aside from soybean meal. Separately, spot corn futures settled at a record high, as traders acknowledge corn yield losses are irreversible from the US drought. Wheat futures ended higher, supported by strength from corn and worries about European wheat production.
CIS, Inc. noted over the weekend that while no one really knows where prices may top this summer, the life cycle of historic bull markets suggests that significant demand destruction will occur this year that will have ripple effects well into the future. The crop scare of late June and early July has turned into a potential "crop disaster." The USDA indicated this year's drought has become the worst since 1956. Others are comparing it to the Dust Bowl of the Thirties. Corn and soybean futures advanced to historic highs this week and unprecedented gyrations occurred in grain spreads as near term market action became unpredictable. Forecasts for $10 corn and $20 soybeans have become commonplace. With major news media beginning to warn of a global food crisis, hedge funds and speculators are increasingly attracted to grain markets. Many livestock and poultry producers have not covered feed needs for fall as they expected lower prices into harvest. Therefore, buying should support setbacks in weeks ahead. If prices remain near current levels or higher over the next few months, livestock herd liquidation can be expected. This will pressure animal and meat prices in the near term, but set the stage for shortage and higher livestock prices next year. Significant herd liquidation would lead to "demand destruction" for feed next year and historic bull markets in coming months could turn to historic bear markets next spring and summer. In addition to the fundamental market forces associated with the crop disaster, subscribers must watch for governmental actions designed to curb spiraling prices... An emergency reduction in the US ethanol mandate... Export restrictions or taxes similar to Russian events in 2010... Or, rule changes to curb volatility and speculation.
The US dollar trading at the highest price since 2010 no doubt played a small part in today's sell off, with traders looking for any reason to cash profits along with the 13th call for rain in the worst drought since 1936. Bottom line, any time we sell off, someone is going to yell "top,top"! On the three grain charts below I am going to show you key moving averages on my slower intra-day charts that have to give, before we can even say the uptrend is in jeopardy.
US Dollar Daily Chart
Corn
My 6 hour chart has held every major correction since this market took off to the upside at 5.50. Notice how overnight the purple line held again. A close under today's low of 7.67 would be a shot over the bow that liquidation has really started and the start of a ugly break. Bt remember, the first break rarly holds, and usually gets bought. That means the bounce afterwards has to be watched for signs of weakness that imply a top really is in.
Dec Corn Intraday Chart
Beans
Unlike corn, they still have room to fall and maintain a bullish uptrend. Hear 1570-1580 marks a very strong support area if this market does not find a Turn-around-Tuesday to reverse today's losses.
Nov Bean Intraday Chart
Wheat
For Chicago September wheat the major number is 896-904. Wheat is just being priced as a protein alternative to be feed if it is to cheap compared to corn. That is why I keep saying wheat is the new corn. Stories that effect wheat on exports right now are not important. If corn goes down, wheat goes down.
Chicago Wheat intra Chart
Live Cattle and Feeder Cattle
Friday's Cattle On Feed report was deemed neutral (On Feed 103 vs. a 102.5 estimate, Placed 100 vs. 99, Marketed 94 vs. 94). The semi-annual inventory report was viewed as bullish at 98%, showing less expansion than the trade estimated. That will affect 2013-2014 prices more than this year's prices. For the time being, it's all about corn...feeder cattle moved inversely with corn all day long. Cash offers started the week 116-117, choice cutouts are trading 179.00, and packer margins are 4 bucks per head in the black. Prices will likely get worse before they get better, but as we get into next year, bidding will be fierce for cattle.
August Live Cattle Daily Chart
August Feeder Cattle Monthly Chart
Gold
Do I really need to repeat myself? For weeks now I have been saying gold is a pinball machine trading between the two trend lines. When it changes the story will change.
Gold Daily Chart
Crude
My revised resistance number for oil, when we rolled to the September contract was spot on. 93.00-94.00 stopped this market cold with an actual high of 93.25. Support comes in now at 85.00-86.00. Europe's financial problems are now seen more problematic then Iran with its little dinghy boats and the bottle rockets they have mounted on them. The rally is in three waves. That is a price negative wave structure.
September Crude Oil Daily Chart
07-23-12
Link (in blue) below to view the latest market prediction interview on KFYR - TV:
NOTE: With the exception of livestock, all trades will be entered in the electronic markets unless otherwise noted. Hedge recommendations and Trade recommendations are totally separate, and may sometimes conflict with one another. It is strongly suggested that Spec trades and Hedge trades be done in separate accounts.
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A word to the Wise
Past performance is not indicative of future results. The information contained in this report is intended for informational purposes only and is the opinion of the writer and may change at any time. This information was compiled from sources believed to be reliable to Heartland Investor Capital Management , Inc. but accuracy cannot be and is not guaranteed. There is no warranty, expressed or implied, in regards to this information for any particular purpose. There is SIGNIFICANT RISK of LOSS involved in trading futures and / or options on futures and may not be suitable for all investors. Investors should consider these RISKS and evaluate their suitability based on their financial conditions. No one should ever consider trading futures or options on futures with anything other than RISK CAPITAL . NO LIABILITY on the part of the author exists for any trading loss you may incur in the use of this information. The information contained in this newsletter is privileged, confidential and protected from disclosure. Any further disclosure or use, distribution, dissemination or copying of this message or any attachment is strictly prohibited.
Newsletter provided by Heartland Investor Capital Management, Inc. a registered CTA with the NFA, of which Eugene Graner is principal. This entity is a separate legal entity from the Introducing Broker Heartland Investor Services.
July Minneapolis put in quite the performance today (plus 42 cents), most likely because of drought concerns in Europe. September looks like it wants to go the red line 810 resistance area at the very least.
Higher corn is weighing on cattle futures, and the drought is leading to herd liquidation. Add a potential seasonal high in beef prices (choice now $193.50), it is likely that cattle have put in a short term top. What's bearish now is bullish later. Supplies will get very tight later in the year and into next year.
Friday's Cattle On Feed report was deemed neutral (On Feed 103 vs. a 102.5 estimate, Placed 100 vs. 99, Marketed 94 vs. 94). The semi-annual inventory report was viewed as bullish at 98%, showing less expansion than the trade estimated. That will affect 2013-2014 prices more than this year's prices. For the time being, it's all about corn...feeder cattle moved inversely with corn all day long. Cash offers started the week 116-117, choice cutouts are trading 179.00, and packer margins are 4 bucks per head in the black. Prices will likely get worse before they get better, but as we get into next year, bidding will be fierce for cattle.
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