A lot can be said about the slew of data today. Unemployment dropped percentage wise, but that doesn’t account for the following ” December, the economy added only 74,000 jobs – not nearly enough to keep up with population growth –and 347,000 left the workforce. That means for every one job added, nearly 5 people left the workforce entirely. There are now nearly 92 million Americans outside the workforce, resulting in the lowest participation rate in 36 years. The fact that the Dow held up in the fact of that news was impressive, but if you stop and think about it, the market has discounted this since it started rallying from 6500 back in 2009.
I continue to suggest to clients to remain long index funds and use put options on a quarterly basis to protect against the inevitable 10 or 15 percent correction. in other words, ride your longs, but keep a safety net and just wait for the correction.
The US dollar took a header today faltering and moving below its recent respite at 81. Will we see a return to the 79 level we saw during the October lows?
Trading the grains, a cheaper US dollar is bullish b/c it makes our supply more attractive to foreign buyers.
As for the USDA report, the biggest “surprise” was the USDA lowering corn yield to 158.8. Lowered the carry out to 1.6, 160 million below the previous estimate. they estimated the crop size at 13.952 down form the previous 13.98 estimate. They left Brazil production unchanged and lowered Argentina slightly. They raised US acres by 436K… the lower carry out was enough to send the bears running for cover. I had thought this was possible. The herd was awfully bearish before this number.
What I see developing, is another rally that farmers won’t sell into. The entire 2013 was like that. Hang on and ride it. With 6 Billion bushels in the hands of farmers, this looks like just another potential head fake for the perma bulls.
As for 2014, its too early to get bulled up or bear ed up. We’ll have to wait for “planting delays, too muddy or too dry, as usual. If we plant a big crop , and we get the weather, we’ll have a big supply looking at us this time in 2015. But, time will tell and the charts won’t lie.
The bean calls look to be a decent play.
The USDA raised the yield to 43.3, up from the previous 43.0. They increased harvested acres by .21 million acres to 75.9 Bean production increased to 3.29 The basis remains strong and next week we should get a real digestion of this number. For now, it looked to be a short covering rally as well.
for the wheat, that was the real bear story. Wheat can’t buy a higher settlement it seems, ever since we had March wheat drop below $6.00 its been ugly. The wheat seedlings estimate was 1million acres below expectations, (bullish) but was ignored. quarterly stocks came in at 1.46 billion bushels , 200 million below last year. Ending stocks increased due to less feed usage since last month. Global stocks however, were the nail in the coffin. up 2.62 MMT from last report. The world is awash in wheat and the US dollar will have to drop a lot further to make our wheat more attractive to our customers.
All in all, its what I had expected, except for the continued melt -down in wheat.
The cheap corn and bean calls worked out ok. although the corn calls were the best. The volatility got sucked out of the bean calls by 1:00, so we’ll have to wait until Monday to take a look at those.
This was one more case where the herd may be right long run, but for now we are in short-covering mode. If I had stored grain, I’d be using this gift in corn and beans to get grain in the bins out the door and into the hands of the end user.
Have a great weekend. CER
