Ag Market Update - April 21, 2015


by Ron Lee


Highway 118 West, PO Box 171

Bronwood, GA 39826




Agricultural Settlements

Commodity                 High                 Low                  Close               Change            YTD     


 July 15 Cotton          .6348              .6286              .6299              - .0040          + .0099

Dec 15 Cotton           .6369              .6327              .6345             - .0006           - .0097

Dec 16 Cotton           .6500              .6475              .6506             + .0033          - .0072

Dec 17 Cotton                                                         .6670             + .0033

Sep 15 Corn             3.9150            3.8550            3.8775           - .0425           - .3500

Nov 15 Soy              9.5975            9.5050             9.5675           - .0150           - .4875

July 15 Wheat          5.0575            4.9375             5.0025            + .0200         - .9725



Today's Market Report
Seeing how it has been about two weeks since I penned an update, I figured today was as good of a day as any to start this thing back up, even if these markets are like watching paint dry.  Cotton prices failed last week pretty much where everyone in the cotton business, including myself thought they might around .6700 and it's been lower and lower since.  Today, the July contract (which accumulated the more open interest in our absence) finished 40 points lower at .6299, while the new crop December was down six points at .6345.  Grains were lower as well, with corn off by roughly a nickel today.  The reemerging threat of Bird Flu, which led to the demise of more than 5 million chickens this week in Iowa is casting a doubt over feed demand, while an improving planting forecast isn't helping much either. Soybeans cut their losses significantly into the close, only losing a penny or two, while wheat actually finished fractionally in positive territory.  While soybeans have been volatile from time to time, we have basically watched corn, soybeans, and wheat simply grind lower since the calendar turned to 2015.  And while, the downside of wheat under $5.00 seems limited, I would expect more of the same to come to pass for corn and soybeans.  As I will mention again in the cotton section, the main bullish bullet point out there at the moment seems to be the idea that growers are going to skimp on inputs on the farm this year and that may lead to lesser than ideal final yields and quality.  Right now, long term weather forecasters just don't see a whole lot of potential problems out there this growing season for the majority of the US agricultural base acreage.  Will we get weather scares?  We seemingly always do, but as I've said for over a year now, these will continue to be rallies that need to be sold.  Outside markets have been solid in our stead over the last 10 days.  We have seen the dollar maintain its lofty position among world currencies, even though we haven't taken out the recent high.  The stock markets continue to trade at historic highs, so between those two, it would appear that even with all of our warts, the United States appears to be the best place to do business.  We are also witnessing a nice rebound in the energy sector.  While crude oil is off moderately today, the gains over the last several sessions has been impressive.  However, if we can't take out the recent highs around 57.00 - 58.00 pretty soon, this market could roll over once again as inventories remain very high.  
Inside the Cotton Market
I have to give kudos to those that can put out a daily cotton letter with a market like ours.  Just look at the quotes at the top of this page:  Both old crop and new crop prices are essentially within one penny per pound from where we started 2015 and we are one-third finished with this year.  I'm not sure how you can write the same stuff, day after day but I tip my hat to those that try.   The same market fundamentals that I have mentioned like a broken record in this space over the last few months are still firmly in place.  As far as old crop goes, we've said that you can buy it below .6300 and sell it above .6600 til the cows come home until something changes.  And as long as the Indians and the Chinese refuse to sell their stockpiles, .6600 basis ICE futures is simply too expensive for US bales.  On the flip side, with our stocks here at home are too tight for the market to go too far below .6300 and sell ourselves out of cotton.  I'm not sure what all this means, but I do think looking at it as an amateur economist, the US cotton policy is a helluva lot better than their Indian or Chinese counterpart, regardless of what the critics might think.  I still believe that you can buy July below .6300 and sell it above .6600, even if that range might be more like .6100 to .6750.  It doesn't seem too exciting, but Tony Gywnn was the best hitter I ever saw, and he didn't hit anything but singles, with the occasional double.  We will try to focus less and less on the July, and more and more on the December/March going forward, but right now speculative traders just aren't very interested in outright December and to be honest, farmers aren't either with prices at .6345.  Looking objectively at December or March, it looks like a range bound monster as well, although the bottom end of that range may have more room to probe lower than does the upside.  While nearly 60% of the US crop is going to be planted in Texas and specifically West Texas, the fact of the matter is the majority of that area is starting off better, with more subsoil moisture than they have in five years or so.  Most of this area got in another nice rain event late last week.  As I mentioned earlier, the biggest deterrent to making a crop out there this year may be the unwillingness of the grower to put the necessary inputs into making a bumper crop.  Talks of using conventional, "brown bagged" seed and much lower fertilizer rates are becoming more common in West Texas coffee houses I am told.  As I've said in previous letters, you would think the seed, fertilizer, and chemical industries would be a tad more sympathetic to the farmer's plight with regard to prices, but that definitely doesn't seem to be the case.  Therefore, the farmer might take matters into his own hands when and where it is possible. Now saying all that, I think it is a pretty poor idea to take this route.  When prices are low and forecast to be low throughout the season, the only way you are going to make it through is by maximizing your yields and having a savvy marketing plan.  We are content for now to take these singles when the market presents the opportunity.  Like last week, we did price some December cotton at roughly 6600 and sell the December 68 call for 300 points.  Unless December is trading above 7100 come mid November, this will be 6900 cotton for those that sold this cotton.  69 cent cotton doesn't look great, but it looks a heck of a lot better than the .6345 where we closed today.  If prices move toward .6000, that .6900 cotton becomes .7500 cotton in all likelihood via an added LDP payment.  Back to the analogy, unless there is something out there nobody sees, there just aren't likely to be any home run opportunities this year.  Just try to keep hitting singles and get this pitcher (the year 2015) out of the game.