Energy & Commodities
In September, USDA global wheat production estimates were revised slightly higher. Mainly due to better crop conditions in Turkey and Russia, estimates were raised to 744.85 million tons from 743.18 million tons in August. Based on the latest data, Russia is currently expected to be the top wheat exporter in the 2017/18 season year. Global wheat consumption is now expected to edge slightly lower from this year’s record of 738.7 million tons and reach 737.5 million tons next season year. Latest data are more bearish for global inventories, however, which are forecast to increase 16.5 percent to 263.14 million tons.
The September USDA report saw a downward revision in corn production for Ukraine, Russia and EU countries. As a result, global production is forecast to demonstrate a 3.7 percent year-over-year decrease to 1.03 billion tons in 2017/18. In contrast with forecasts for an annual consumption increase in August, global corn consumption was revised lower in September and is now projected to remain nearly unchanged at just below 1.06 billion tons. Consequently, global inventories are expected to demonstrate a strong 11 percent year-over-year increase to 202.5 million tons.
With soybean consumption continuing to increase, global crush in 2017/18 is expected to reach 300.7 million tons vs. the current year’s level of 288.5 million tons – a 4.2 percent year-over-year increase mainly driven by solid production yields and a record soybeans production of 4.431 million bushels. Global inventories are expected to slightly offset the balance and are currently projected to remain nearly unchanged at 97.8 million tons. With a forecast for a 3.4 percent increase in global exports, USDA expects the US soybean prices to average $8.35-10.05 per bushel in 2017/18, 10 cents lower year-over-year at the midpoint.
Global soybean meal production is expected to continue closely tracking domestic use in 2017/18, and is currently expected at 234.4 million tons – a 5.5 percent year-over-year increase from the current year’s level of 222.1 million tons. In the meantime, global production – projected at 236.6 million tons – will likely narrow down the production-consumption spread to 2.17 from 4.27 million tons a year earlier. However, despite the expected global ending stocks decrease – currently seen at 12.9 metric tons – the USDA lowered its pricing forecast from August and currently expects U.S. prices to average $290-330 per short ton next year.
Due to a significant expected decrease in harvested area, U.S. rice production is forecast to suffer a 20 percent decrease in 2017/18, with additional downward revisions for China and Bangladesh. Partially offset by increased production levels in India, Burma and Peru, global production is expected to reach 483.36 million tons next year, a minor decrease from this season year’s estimate of 486.39 million tons. Global consumption is projected to edge slightly lower to 482.5 million tons, raising the ending stocks estimate to 123.52 from 120.33 million tons estimated for the current season year.
Due to a strong decrease in U.S. production estimates, USDA projects the domestic stocks to suffer a 37 percent year-over-year decline in 2017/18, fueling a significant increase in domestic price estimates: “For the third consecutive month, U.S. season-average price forecasts (SAPF) for 2017/18 for both classes of rice and for both growing regions were revised up. Like last month, this month’s upward revisions were largely based on tighter U.S. supplies, increases in both reported monthly cash prices and weekly spot prices, and expectations of prices during the remainder of the 2017/18 market year. Forecast 2017/18 SAFPs are well above 2016/17 SAFPs for both classes of rice. The 2017/18 long-grain season-average farm price is projected at $12.00-$13.00 per cwt, up 50 cents on both ends from the previous forecast and well above the slightly revised $9.62 in 2016/17. […] The California medium- and short-grain 2017/18 SAFP is forecast at $15.50-$16.50, also up 50 cents on both ends of the range from the August forecast and up from a revised $13.60 in 2016/17.”
The September USDA report saw an upward increase in global cotton production estimates, raising the 2017/18 estimate to 120.8 from 117.3 million bales in August. Mainly driven by continued cotton demand growth in the Asian region, world cotton consumption is projected to demonstrate a 3.6 percent year-over-year increase and reach 117.75 million bales during the next season year. Ending global stocks are forecast to increase from the current multi-year low of 89.6 to 92.5 million bales. Consequently, latest U.S. pricing estimates are slightly below the current price of $0.68 and are forecast to trade in the range between $0.54 and $0.66 per pound in 2017/18.
With no significant data updates on Coffee in September, Brazilian crop harvesting period is nearing its end. As a result of excess rain and beetle pests, country’s Arabica production came in below estimates and resulted in slashed crop estimates by Conab, Brazil’s official crop bureau. Conab currently projects domestic production at 44.77 million bags in 2017/18, lower by 790,000 from the previous estimate. Despite the upward revision totalling 568,000 bags, Brazilian Robusta crop is forecast at 10.71 million bag and is expected to demonstrate its 2ndweakest result in a decade. Despite slightly tempering the upbeat coffee production expectations, its global supply balance remains relatively bearish. Signalling weaker sentiment, large traders have been net short the coffee futures contract since the middle of August.
Sugar prices remain in a downtrend due to bearish supply fundamentals, with no USDA data updates in September. Reports of better crop conditions in India and the abolishment of the EU sugar quotas – resulting in a significant inflow of new sugar exports – continue to depress the soft commodity. In the meantime, recent price action was also significantly influenced by the reports of a production rebound in Brazil. According to a cane industry group Unica, Brazilian Centre South mills – representing more than 90 percent of the total Brazilian output – produced a total of 3.13 million tons in the first half of September, 50 thousand tonnes above the S&P Global Platts consensus estimates.
For 3pm PST Wednesday October 4 , 2017
DOW + 20 on 59 net declines
NASDAQ COMP + 3 on 16 net advances
SHORT TERM TREND Bullish
INTERMEDIATE TERM Bullish
STOCKS: The market was pretty much flat on Wednesday with a mild upward bias. Helping hold things up may have been a somewhat better than expected ISM number. Also, Warren Buffett was on the wire stating that he liked the stock market. This was probably a minor, but positive influence.
GOLD: Gold inched up from an oversold condition. Still looks bearish.
CHART: The Russell 2000 was lower today. Frequently, it leads the Dow and S&P 500. We’ll soon see. Like tomorrow.
BOTTOM LINE: (Trading)
Our intermediate term system is on a buy.
System 7 We are long the SSO from 95.27. Move your stop to 97.27.
System 8 We are in cash. Stay there for now.
System 9 We are in cash.
NEWS AND FUNDAMENTALS: Oil inventories were down 6 million barrels. Last week they were down 1.6 million. The ADP employment report showed 135,000 jobs added, less than the expected 140,000. The ISM non manufacturing index was 59.8, better than the consensus 55.5..
INTERESTING STUFF: You must not fight too often with one enemy, or you will teach him all your art of war. ——–
Napoleon Bonaparte
TORONTO EXCHANGE: Toronto gained 24.
BONDS: Bonds were slightly higher.
THE REST: The dollar had a slight pullback. Crude oil was again lower.
Bonds –Bearish as of September 27.
U.S. dollar – Bullish as of September 13.
Euro — Bearish as of September 13.
Gold —-Bearish as of Sept. 11.
Silver—- Bearish as of Sept. 11.
Crude oil —-Bearish as of October 2.
Toronto Stock Exchange—- Bullish as of September 20, 2017.
We are on a long term buy signal for the markets of the U.S., Canada, Britain, Germany and France.
INDICATOR PARAMETERS
Monetary conditions (+2 means the Fed is actively dropping rates; +1 means a bias toward easing. 0 means neutral, -1 means a bias toward tightening, -2 means actively raising rates). RSI (30 or below is oversold, 80 or above is overbought). McClellan Oscillator ( minus 100 is oversold. Plus 100 is overbought). Composite Gauge (5 or below is negative, 13 or above is positive). Composite Gauge five day m.a. (8.0 or below is overbought. 13.0 or above is oversold). CBOE Put Call Ratio ( .80 or below is a negative. 1.00 or above is a positive). Volatility Index, VIX (low teens bearish, high twenties bullish), VIX % single day change. + 5 or greater bullish. -5 or less, bearish. VIX % change 5 day m.a. +3.0 or above bullish, -3.0 or below, bearish. Advances minus declines three day m.a.( +500 is bearish. – 500 is bullish). Supply Demand 5 day m.a. (.45 or below is a positive. .80 or above is a negative). Trading Index (TRIN) 1.40 or above bullish. No level for bearish.
No guarantees are made. Traders can and do lose money. The publisher may take positions in recommended securities.
Why it’s important to the typical gold investor
By Michael J. Kosares
Author: The ABCs of Gold Investing
Founder: USAGOLD
“Even those of us who have been tracking gold’s progress for decades frequently give in to the ease of quoting gold’s value in terms of fiat currency – most commonly in US dollars. And yet, we have it the wrong way round. Gold is in fact the centre of the economic universe, and all the fiat currencies (including cryptocurrencies) revolve around gold.” – Jeff Thomas, InternationalMan.com
Most gold investors are aware that major national currencies have been in an uptrend against the dollar since the beginning of the year. What might be surprising is the degree they are up against the dollar. Here is the scorecard:
Euro –– +10.3%
Japanese yen –– + 4.2%
Chinese yuan –– + 4.5%
Swiss franc –– + 5.1%
British pound –– + 8.9%
Australian dollar –– + 9.0%
Canadian dollar –– + 7.2%
(As of 9/27/2017)
Even more surprising is the degree to which gold has strengthened against those same currencies. Here is that scorecard:
Euro –– + 1.1%
Japanese yen –– + 8.0%
Chinese yuan –– + 6.5%
Swiss franc –– + 6.1%
British pound –– + 3.4%
Australian dollar –– + 2.1%
Canadian dollar –– + 3.2%
U.S. dollar –– + 11.5%
(As of 9/27/2017. See charts below.)
Gold and the dollar are often referred to as safe havens in the same breath, but what these numbers tell us is that – at least for now – gold increasingly has become the safe haven of choice. It is too early to know whether or not the across-the-board uptrend in gold will continue, but it is worth noting and monitoring. Clearly, significant capital is finding its way to the gold market globally and we suspect that institutional investors and funds have played the dominant role.
Why is gold’s appreciation against domestic national currencies important to the individual American gold investor?
It identifies an important trend in gold ownership taking hold in the top economies around the world – a developing investor mindset and response to host country monetary policies that could be of immense importance going forward. It is revealing that the same phenomenon has taken root concurrently in all eight of the countries represented by the currencies listed above.
The pattern reflects concern about central banks’ ability to lift local economies out of a persistent disinflationary malaise. It also suggests that for many investors gold, not the U.S. dollar, looks to be the safer and more productive alternative should things take a turn for the worse.
As long as the low interest rate environment and concerns about overvaluation in the stock and bond markets persist, asset managers and investors are likely to continue shifting resources to underpriced gold (and silver). Given forward guidance provided by the central banks, it appears those policies and concerns will be with us for years to come.
Thus far, gold’s performance against major currencies has flown under the radar in financial circles and outside the notice of the mainstream media. That is not likely to remain the case for long.
Click image for Larger Charts
Charts courtesy of Gold Charts$Us/Nick Laird. With thanks.
In the October issue of News & Views, we pick up where this article leaves off with a very important companion piece: How Professional Investors Radically Altered the Gold Market. We also explore what has brought the Old Guard back into the precious metals market. Last, we include a CLIENT SPECIAL ADVISORY in conjunction with the 20th anniversary of The ABCs of Gold Investing.
Black Swan Currency Currents
Quotable
“Be ready to change your strategy with the environment. (The environment, not your strategy, is the data).”
__Mark Weinstein
Commentary & Analysis
Watching the currency market over the past couple of days has been akin to watching paint dry. In my case the paint drying analogy is probably because I have a few different scenarios in my mind and find all of them plausible (see, Orwell’s Doublethink lives in the minds of traders). My continuous question as I watch currency price action: Mr. Market, what are you telling us about the dollar?
Three simple scenarios now rattling in my head:
1. The correction is over the dollar is heading for fresh new lows as measured by the US dollar index. This is not my favorite scenario now, primarily because the dollar is getting yield support.
US dollar’s relative yield has risen as US rates across the curve have risen. Over the intermediate-term rising relative yield has correlated well with either dollar support, or a rally.
Below is a chart showing the 2- and 10-year yield spreads Eurozone-US, United Kingdom-US, Australia-US, and Canada-US. Relative yield has been moving in favor of the US against the pack:
2. The US dollar has put in a corrective bottom, and is poised for a powerful trend move higher. This scenario makes some sense considering the potential for surprise:
The Surprise—President Trump’s tax plan is passed with flying colors, sooner than expected, and we see a massive repatriation of offshore capital (held by multinationals) coming rushing back onshore, creating a huge bid for the dollar [international money follows to position for major infrastructure investment as part of the tax plan]. This flood of new capital is met by a more a more hawkish Fed, leading to a self-reinforcing feedback loop higher.
3. Though this is threading the needle a bit, maybe we see another near-term correction lower in the dollar, but no new low, then another multi-week rally pushing the US dollar index back toward 96-level. The 96-level on the US dollar index represents a key retracement area and would likely be a big enough move to shakeout dollar bears. [This is my favored scenario as of now.]
Yesterday’s dollar price action should concern dollar bulls at least a bit. With yield support heading the US dollar’s way (as shown in the relative yield charts above), we learned yesterday the US ISM Manufacturing index hit a 13-year high. Given that news, and the interest rate background described above favoring the buck, coupled with Eurozone turmoil given the Catalonia referendum that “wasn’t a referendum,” the dollar staged a muted rally.
This, I think, falls into the category of poor price action relative to the news. No guarantees here of course, but maybe it’s a small caution flag for dollar bulls. We are presently short the dollar, with tight risk given my heavy dose of Doublethink. Maybe something clicks. If not, we re-access the environment.
Subscribe to our Forex service. Results for September…+1177 pips total (588 net)*
*Adjusted PIP versus Total PIP accounts for taking some 1⁄2 positions on trade ideas. All trade ideas where suggested half positions in September.
Las Vegas Traders Expo
I am speaking at the Las Vegas Money in early November. Below is a link and summary of my presentation should you be interested in attending.
https://www.moneyshow.com/events/conferences/tradersexpo/tradersexpo-las- vegas//workshop/f0113342d1b84363ac76e6d264d198a4/black-swan-foreign-currency- trading/?scode=043837
Here is a summary of the event and a list of speakers: https://www.moneyshow.com/events/conferences/tradersexpo/tradersexpo-las-vegas/?scode=043837 Regards,
Jack Crooks, President, Black Swan Capital
jcrooks@blackswantrading.com www.blackswantrading.com 772-349-6883/ Twitter: bswancap
By Bill Fleckenstein President Of Fleckenstein Capital
October 3 – The stock market was slightly higher early on, with the Dow the best index today. Yet for all the euphoria and fanfare about new highs it is interesting to note that FAANG have lost their mojo ever since the big reversal last June. Not that that matters much. Even a horribly disappointing quarter by Tesla wasn’t good enough to see the stock decline to any meaningful degree before it gained ground on the day. Thus, the odds continue to favor more of the same through the end of the year.
….also from KingWorld:
John Embry – We Are Heading Into A Wild Decade Similar To The 1970s
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