Saturday, May 10, 2008

More Costly Corn?

Exerpts from news stories yesterday regarding the USDA crop forecasts for 2008/9:

Associated Press writer Henry Jackson:
Corn production this year could be down as much as 7 percent from the record-breaking heights of 2007, according to a U.S. Department of Agriculture report released Friday.
Here's another one:
"Today's report is an indicator that we're going to be living with very high corn prices for a very long time, at least through the next crop year," said Mark McMinimy, an agribusiness and biofuels analyst with the Stanford Group in Washington.
Although the report could prompt high prices, Roose said the USDA was being optimistic in its projections. If nothing changes, there could be even bigger problems than the report suggests, he said.
"In some ways it's actually kind of a bullish report," he said. "The bottom line is it says we're off to a poor start. We needed things to go almost perfect this year to avoid a big problem and so far we're staring at that big problem."
Apparently, futures markets are pricing in almost perfect growing conditions for corn this year, which is appearing increasingly unlikely. My sources are suggesting that the USDA estimates are typically overly optimistic, and that this year they are unrealistically optimistic. The risk is to the upside for prices.

Friday, May 9, 2008

Only Soybeans Close Higher

Although corn reached new highs today, it closed down for the trading session. While somewhat bearish, I had anticipated the potential for a pull-back to the Exponential Moving Average on the daily chart. This usually would cause me to take a smaller initial position when trading on the longer-term charts.

Wheat sold off today, and despite a few rallies, prices never regained any footing. Liquidity for wheat was better than average today, so there must have been fairly strong interest in trading it today, following the USDA crop reports.
Soybeans closed about 48 cents higher for the day (see the chart). This was a typical trading day, with some difficult trading conditions at times, but also some good moves for nice profits.

Beans Blossom

Finally, after spending much of the trading session lower, the grains, and soybeans in particular, have rebounded and are headed higher. The fundamentals have won out!

Surprise! Prices Fall Instead!

Surprise shocks in the futures market can always catch traders by surprise. Today is an example. Corn has opened sharply lower with prices selling off instead. Wheat is off sharply as well, with soybeans opening sharply higher, but remaining relatively flat from that opening price. Could demand decay be occurring? Wow!

This is one reason why one of my past mentors told me to ignore fundamentals-related news. If I am expecting the market to move higher based upon a news event that creates this predisposition in my mind, it's difficult for me to sell when the market moves in the other direction. There is always more news that I don't have, and in cases like today, that other news may move the markets in a direction that I didn't expect. Thus, it is best for me to react to the charts, and if I maintain an open mind to either direction, I can trade without the biases that lead me to make errors in judgment.

Grains Broadly Higher

It appears that commodity prices are now rapidly escalating toward round two of inflation. Recent Dollar gains have stymied, and commodity prices, lead by oil, are moving rapidly higher. Grains have been among the most subdued in recent weeks, but with soybeans, corn, and wheat all forcefully higher in overnight trading on good volume, they appear to be poised to move to even higher highs down the road. Soybeans and wheat have moved only modestly, but corn is up more sharply.

Corn (see the chart) has reached fresh all-time highs overnight. Furthermore, the USDA crop reports that were released this morning are also quite bullish for prices. Corn production would have to increase 33% next year just to meet U.S. government expectation. 60% of the U.S. corn crop would have to be planted in the next 3 days in order to meet demand expectations for this year. That's not going to happen, so the corn crop this year is likely to disappoint. Elevated prices, however, are also starting to rein in demand.

The USDA report is also bullish, with the protests in Argentina resuming upon the complete breakdown of talks between farmers and the socialist government. Weather, however, is contributing to good harvests across South America.

Crude At $126.20 -- Painful At the Gas Pump

As crude oil continues its march to higher and higher prices, it is more and more clear that it is going to create more and more pain for drivers as they see the escalating price at the gasoline pump.

Thursday, May 8, 2008

OIL Above $124.50

Traders Not Causing Higher Food Prices

From a story on today:

The latest report from the Commodity Futures Traders Commission about outstanding rice contracts shows that only about 19% of them are held by non-commercial investors, or companies that might be speculating as opposed to actually hedging against price moves.
He said effects such as production problems, demand increases, the increase in energy costs for producers, and even the decline in the value of the U.S. dollar have all played even bigger roles in contributing to the surge in prices. The dollar itself has contributed to about 25% of the price increases in agricultural commodities, especially in corn and wheat, he said.
"We had a bit of a perfect storm in a lot of these markets," over the past year, he said. "Commodities are very energy intensive to produce and transport."

Corn Break-Out

Corn has not only achieved a new all-time closing high, but has also closed outside of the Bollinger Bands, and it represents a perfect Cahen T1 (see his book in my list at the right side of this blog). This daily chart shows the emergence of what may be a new trend for corn. This is a strongly bullish signal, and when combined with strong volume, as this shows on the Klinger Volume indicator, it has a very high probability of success. If prices continue higher than the new high reached today, this new bullish trend would be confirmed. I am also looking for a possible pull-back to the Exponential Moving Average before the new bull trend resumes. Wheat was also stronger, and even soybeans rebounded somewhat just in the closing moments of the trading session.

Sell Grains!

All of the grains have sold off in the closing minutes of trading. Soybeans has sold off the most, but wheat selling has also been brisk. Corn has largely held onto its gains for fundamental reasons. Wheat is also solidly higher today. Soybeans will benefit from the corn planting delays, which is bearish for prices.

Grain Commodities Put in Floor?

I have written more about this on my ETF blog today, but from this chart of the grains-only ETF of iPath, it appears that grain prices have bottomed and are poised to either begin moving higher or perhaps consolidate for a time.

Wheat Parabolic on Intra-Day

Lest my last post appear somewhat inconsequential, look at these intra-day charts for today. Wheat is moving powerfully higher today!

Wheat Appears to Bottom

Wheat has plunged in price over the past few months from a price of over $12.72 per bushel to a recent bottom of around $7.76 per bushel, a 39% drop in price. Now, it appears from this daily chart that wheat has bottomed and is beginning to move higher again. It seems odd that although wheat, livestock, and other commodity prices have fallen in recent months, the pundits don't mention this.

New Record for Corn on Oil Strength

Corn and soybean prices are higher today also, largely as a function of both continued planting delays due to wet weather and yet higher crude oil prices and their impact on the price of ethanol.

Gold and Oil Higher

Gold has moved significantly higher today, and crude oil has reached another new all-time record of $123.90/barrel. The Dollar has softened somewhat today, perhaps a contributing factor to the gold and oil event.

Wednesday, May 7, 2008

Crude Oil at $123

Tuesday, May 6, 2008

Crude Oil - Record After Record

Crude oil prices are now just shy of $121/barrel. Don't stand in the way of this freight train! And just look at the price of natural gas and gasoline, too!

Until America wakes up and gets serious about becoming energy independent, this will continue, and will eventually result in economic catastrophe -- and possibly even worse. I am completely in favor of developing green energy. I think every building in America, including every home, should have solar cells on its roof and a wind turbine somewhere on the property. I think every power pole in the country should have small solar cells and turbines on them also. Green is good. Very good!

However, this is only a partial solution. We must also produce more oil at home, combined with clean coal and possibly nuclear power also. The United States has more crude oil sitting off its coasts than all of Saudi Arabia, but doesn't permit its production largely due to overly-zealous environmentalists and politicians from the states so affected by them. They are determined to reduce use of energy in the United States even if it leads to a depression. They are convinced that's what is necessary to compel everyone to adopt their misguided vision of energy utopia. It is leading America instead toward an energy and economic collapse of cataclysmic proportions -- at the point of an economic government gun!

America's energy solution must be a broad-spectrum solution. The green energy fanatics and global warming lunatics are going to drive the United States into a depression and back to the dark ages because they are determined to limit the solution to just a few forms that simply can't meet the demand nor fill all the needs. Thus far, there simply isn't a replacement for all the utility of crude oil. That's the reality. Until we accept it and develop our domestic oil resources, we will continue toward the edge of the cliff. If you think its bad now, America, just wait until we reach the cliff!

Last week, the President of OPEC predicted $200 oil. And that's not even the edge of the cliff either. The cliff will abruptly arrive when, for some reason, whether an oil embargo, a war, or the complete collapse of the Dollar, the oil supply is completely disrupted. Even the Petroleum Reserves won't be sufficient to fill the gap -- it is only about a 3 week supply for the United States. Just 3 weeks!

None of the 3 major political candidates for President is committed to developing domestic energy independence in a manner that will work. All three are more committed to the global warming sham than to energy independence. All three are ideologues, not solution-finders. Whichever one is elected, I predict will eventually go down in infamy when history gives them their due.

Contrary to what populist/socialist politicians would have you think just to get elected, the oil companies are not the villains. They must acquire oil from the same tyrannical dictators as everyone else. They are literally competing every day with Communist China and other governments around the world that also have a thirst for oil. The risks involved in the troubled sore spots in the world are growing with each passing hour. We ignore those risks and villainize the oil companies at our own peril. By increasing taxes on them, we'll simply end up with less oil and higher prices? Don't believe me? We tried windfall profits taxes before, and what did we get? Higher prices and less oil! Just do your research, study your history, and then wake up!

Heaven help us!

Monday, May 5, 2008

Bottom Drops Out of Corn

In the closing minutes of trading today, the bottom has dropped out of corn prices. Just 15 minutes before the close, prices plunged and nearly reached lock limit, but have now rebounded more than 10 cents, which is 1/3 of the limit amount.

Making Money in Slow Markets

On days like today, I will trade much like I do in the evening. Corn is less than 4 cents from Friday's settlement price, and has barely moved in the past two hours. Stocks and treasuries are relatively slow also. Stocks are lower for the day, but haven't moved too much from their opening prices. I will only trade instruments with no more than 1 tick spread, which limits my trading to a few currencies, treasuries, the S&P 500, and corn. I will take a position fading the market when they reach their most recent extremes, taking profits of only 2-3 ticks. This is extremely risky, but allows me to put a few dollars in the till. I keep even tighter stops than usual. As soon as prices move just 1-2 ticks in the wrong direction, I get out. I do not recommend this form of trading.

Painful At the Pump: Crude Oil Above $120!

Crude oil has passed above the $120 mark once again. I don't recall the old record, but it was approximately at the levels we find ourselves at once again. Shucks! That's just plain painful at the pump!

Grains Trading is Ugly Today

I have been trading primarily soybeans today, but have barely eked out a profit for the day. Corn isn't any better -- dead flat, and having barely moved from where the session started right around the $6.10/bushel line. Volatility is low, spreads are too wide, and slippage is greater than what is typical. I suppose that after an average to good week last week in which we had more than the average number of good trading days, we must endure a few days like this one. It keeps us humble and hungry. The crop report this afternoon may give great direction to the market, but for now, not much is happening.

Crude Back to $119

The price of crude oil has once again reached near record levels around $119/barrel (above chart). The Commodities Index futures have also reached their previous record levels once again (below chart).

Crude Oil Back Above $117

That sell-off of petroleum didn't last long, did it?

Sunday, May 4, 2008

Misleading Employment Statistics

Here are some excerpts from John Mauldin's newsletter dated 5/2/08. In essence, his newsletter explains in detail why the employment report last Friday was much more disastrous than the headline suggested, once one digs into the numbers. For example, he explains why the unemployment rate fell even thought population increased and jobs were lost:
April, for whatever statistical reason, has shown the highest number of birth/death jobs for any month. In 2007, the BLS estimated that 262,000 were created in April that they could not account for in the survey of businesses. Somehow, the spreadsheets at BLS had them add 267,000 jobs in April of 2008. That number includes an estimated 45,000 new jobs in construction! And this in a time when both residential and commercial construction are contracting. The actual survey results showed that construction jobs fell by 61,000.
And somewhere, they estimate that 8,000 new jobs in finance were created. As Philippa Dunne notes: “It may be that the gains in our old friend, bars and restaurants, are the [birth/death] model's creation; it added 83,000 to the leisure and hospitality sector. With vacation plans at near-record lows, and restaurants reporting reduced traffic, many of these job gains could disappear in the next benchmark revision.”
Without that addition from the birth/death number, total private employment would have dropped by 296,000. Now, if that had been the headline number, the market would have tanked. Now, I have no doubt that the economy did create a lot of new jobs last month. But when the final revisions are in, we will see that job losses were well south of 100,000.
Unemployment supposedly dropped last month by 0.1%, to 5%. How could a loss of jobs mean a rise in employment? Because the statistics mask a rather disturbing trend. The number of people working part-time is rising rapidly, and they are counted as employed. Again, From Philippa Dunne of The Liscio Report:
“Almost 3/4 of the gain in non-agricultural household employment [from the household survey] came from those working part-time for economic reasons, and another 83% came from what used to be called ‘willing' part-timers. Yes, that adds to more than 100% – 154% to be precise – because fulltime employment declined by 375,000. The increase in those working part-time for economic reasons was at the 93rd percentile of all months since the series began in 1955; the decline in fulltime employment was at the 90th percentile.”
This employment report was ugly, when you look at the numbers under the headline statistics. It is no wonder consumer sentiment is down.
There is other frightening stuff in it. Read it in its entirety here:
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