Ag Market Update - April 23, 2015

 

by Ron Lee

 

Highway 118 West, PO Box 171

Bronwood, GA 39826

Work:229.995.2616

Mobile:229.881.3903

ronlee@mccleskeycotton.com

 

Agricultural Settlements

Commodity                 High                 Low                  Close               Change            YTD     

 

July 15 Cotton          .6571               .6270              .6545              + .0253         + .0345

Dec 15 Cotton          .6542               .6344              .6514              + .0151         + .0072

Dec 16 Cotton          .6620              .6525              .6619               + .0112         + .0041

Dec 17 Cotton                                                        .6786               + .0115

Sep 15 Corn             3.9200            3.8425            3.8425            - .0325           - .3850

Nov 15 Soy              9.6500            9.5450            9.6150             + .0775         - .4400

July 15 Wheat          5.0600            4.9925            5.0125             + .0225         - .9625

 

Today's Market Report
Wow, who saw that move coming today in cotton ??  Nobody, that's who.  Cotton futures posted the biggest one day gain since August of 2012, gaining more than 4% with the July contract up 253 points, settling at .6545.  New crop December tagged along for the ride to the tune of 151 points higher, closing at .6514.  I wish I could tell you specifically why we had such a big gain today, and I suppose I will make a half-hearted attempt in the section below.  Grains were mixed today, even as the majority of the markets were conducting an obvious "risk on" day.  Soybeans led the way, gaining 7-8 cents as a reemergence of the port workers strike in Brazil reared its head despite less than desired exports here at home.  Corn exports were solid and corn spent most of the session in the black, but finished terribly, dropping 2-3 cents with session lows being posted on the close.  Wheat finished marginally higher amid widespread fund buying for most all commodities.  I still think wheat prices below the key $5.00 handle holds a lot of risk for not much reward for those wanting to sell this market.  A substantially lower US dollar led to widespread buying of most everything else on this Thursday.  Crude oil and its products are firmly higher today and have taken out recent key highs.  The first sign of inventory reductions at a key hub in Oklahoma is lending support in addition to the aforementioned weaker dollar.  I would expect additional buying of energy futures and options with today's potential strong close.  I think and have thought that growers with the ability to hedge or store diesel and or gasoline should have been proactive in this over the last few months as there was no way of correctly predicting the exact bottom in this bear market.  If you have not done so, I would probably start to do so with today's impressive performance.  The stock markets are also strong today, with the NASDAQ posting an all time record high earlier today.  Whatever spurred today's gains, we are glad it took the notion to do so.
Inside the Cotton Market
 I have spoken with several market participants today to try to determine if there was any single key fundamental event that would lead to the biggest one day gain in 20 months to no avail.  It was to no avail because I don't believe there was one specific reason, rather a combination of things that led to the speculator coming back into the long side of cotton in earnest.  Nearly 50,000 contracts traded hands today, so I'm sure we will see a sharp increase in open interest, specifically in the July contract, tomorrow morning.  This will obviously be new speculative longs.  The combination of factors to today's big gain were probably the moderately good export report of nearly 150,000 bales in new sales, the fact that the market had moved to a level where buying always seems to re-appear,  the lower dollar, and the general "risk on" day for commodities and equities.  All of this said and despite the huge gain on the chart, we still sit comfortably within the 6300 to 6600 and certainly within the 6150 to 6750 ranges we spoke of on Tuesday.  Additional fundamental information, which includes the likelihood of a couple hundred thousand acres in South Texas not being planted due to wet conditions and insurance deadlines and the report that Chinese acreage might be lower by 27% would have been supportive as well.  However, those items should have implications for the December contract as opposed to the July and most all of the buying was contained to the July today.  I wish I could get overly excited about today's performance, and while it is certainly true that the speculator has far more money than the trade does cotton, until we take out recent highs, I can't do it quite yet.  For the July, the recent highs near 6650-6675 and in December, 6590 are roughly 100 points away.  I would expect tomorrow to be a rather quiet, consolidation type of day which would make the first couple of days of next week pretty interesting.  I still think old crop has very little value over 6700, and we don't know what new crop is worth until we start to get a crop into the ground and growing.  With .6600 containing December so far, I wouldn't get in anyone's way that wanted to price a small amount of cotton in that area.  If speculators are successful in moving prices through these levels, we should see a pretty good pop in option volatility which would enhance our plan of selling options to add to our eventual final selling price.  While I am cautiously optimistic about today's great performance, I still favor lower prices over the longer term.  As most seemingly always, I hope that I am wrong.