Gary Wilhelmi Weekly Comment 5/14/2012

J.P. Morgan-Chase thought to be our best managed bank, losses $2 billion in six weeks on foolish derivative trades. The CEO simply said we were dumb and if they are, then what about other less well managed banks. This should send shivers up your financial spine. In Spain, their fourth largest bank is being shored up; staving off bankruptcy and the EC says that Spain is having serious difficulty in meeting its deficit targets. Add to this, the disturbing instability of the French, Greek and other governments and you have a capital catastrophe. China is showing some dents in its fiscal armor and monetary management. And here at home there is J.P. Morgan Chase et al. I wish things were better but hoping does not make is so. Support under the Dow Industrials is at 12,700 as the S&P and NASDAQ have recently fallen through chart supports. Other signals of concern are in crude, now down to $96, gold at $1579 and the dollar index at 80.26 with a year high at 81.78. We are not doing very well, but we are doing better than Europe, thus the strength in the dollar as a safer harbor for capital.
The S/D report reaffirmed the tight supply of beans at 210 million bushels of old crop and tighter at 145 million bushels projected for new beans, so the soybeans rallied back to the middle of their trading range. Old crop corn, as witnessed by soaring basis levels is tight, but not as restricted as expected, at 850 million bushels versus an estimate of 750 million, but the crop on expanded acreage is looking great. A 14.8 billion bushel crop is possible driving carryover up to 1.9 billion and the corn went lower. Wheat was a little tighter, but the steering winds came from the corn.
Brazil raised its soybean estimate to 66.7 MT from 65.1 MT as they adjust for the continuing harvest, within the boundaries of the norm. Argentine beans are near 40 MT after starting the year with hopes for a 60 MT production. Large S. American crops will be needed next year, and you can be sure they will plant all they can.
Chinese bean buying is taking a rest but they will likely return to the bargaining table. Corn buying by China comes in fits and starts and in the last few weeks they have had a buying fit.
Cash cattle were very slow to get established with just a few trades at $121-122 early. Boxed beef is not providing demand leadership, down $2 on select Thursday. Looking ahead beef exports, up 5% this past year are expected to recede, while pork remains vigorous. Pork cutout at weeks end was up $1.96 with hams $5.47 better. If Friday’s close is strong it may signal that a bottoming is occurring in hogs. Hogs have fallen from $100 cwt. to $83 and cattle $129 to $112. This weekend’s features continued to lack cook out leadership and cheaper cuts, like 73% hamburger, dominated but not at bargain prices. Those with limited budgets are paying up for the lowest quality ground beef.
Offset to J.P. Morgan Chase loss was a new four year high of 77.8 on the consumer confidence index, but then again China’s industrial output is the slowest in three years.

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