Ag Market Update - April 7, 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     

 

May 15 Cotton          .6666              .6517              .6642              + .0108          + .0535

Dec 15 Cotton          .6570              .6477              .6531              + .0072          + .0089

Dec 16 Cotton                                                        .6450              + .0024          - .0128

Dec 17 Cotton                                                        .6613              + .0024

Sep 15 Corn             4.0275            3.9775           3.9875             - .0175           - .2400

Nov 15 Soy              9.7300            9.6175           9.6325             - .0500           - .4225

July 15 Wheat          5.3300            5.1900           5.2500             - .0275           - .7250

 

Cotton LDP Payment - 3.71 (big decrease coming Thursday)        

Today's Market Report
Cotton has gotten a big spur under its saddle coming off the long Easter weekend, with gains of more than 270 points over the last two days in the spot May contract as speculative interests pile onto the long side of the ledger.  I was out of the office yesterday, spending the day at one of my favorite places on Earth, Augusta National, and as I entered the gate, knowing I wouldn't have phone access for the next 8-9 hours, I remarked that the market would probably be haywire and I was right for a change as the market blasted through its 200-day average and closed with gains of 165 points.  Today, the May contract gained another 108 points to close at .6642, the highest level in nearly seven months!  December is slowly but surely tagging along, even if there is very, very little interest in the outright contract.  New crop December gained 72 points today and settled at .6531.  The grains were rather quiet today, but were solidly lower across the board. Wheat prices started out in positive territory, but struggled late to lose 2-3 cents as positive weather reports after lunch stymied demand for wheat contracts.  Corn futures lost 1-2 cents, and soybeans 5-7 cents, also on improving planting conditions.  We still hear of planting delays in certain areas of the MidSouth, which could ultimately shift some acres to cotton if dryness doesn't occur pretty soon.  In outside markets, it was a strange day as both energy futures and the dollar saw large gains.  Crude oil continues to bounce, up nearly $2.00/barrel, while the dollar gained a whopping 1200 points.  The stock markets had little to any reaction to these dynamics, as the Dow was down roughly 20 points on the day.
Inside the Cotton Market
 When last we left you, we were certainly conflicted on the direction of the market, with a slightly upward bias, but of the belief that the 200-day moving average would possibly stunt any real, material rally.  Well, that theory went out the window in a matter of seconds yesterday as speculative buying busted through that parameter like a tornado through a trailer park. Seeing that as cue, buyers showed up in earnest again today, with more than 36,000 contracts trading hands and almost certainly adding to open interest in the form of new speculative longs.  The old high of .6624, made on February 26th was eclipsed and a new high close of .6642 was posted.  Today's close will certainly bring out all the chart monkey's that will talk of a breakout of a bullish flag, which will supposedly lead to higher prices and possibly much higher prices.  Only one thing stands in the way, in my novice opinion; a little thing called fundamentals.  While we could see prices move a little bit higher in the extreme interim as speculators move money to the long side of cotton, I think this leg higher will be short lived.  At this price and certainly higher, I think we are certain to see some of the 9 million plus bales in the Indian MSP come to market.  These bales are likely to take the place of some of the current US bales on forward mill contracts around the world, which will lead to export cancellations and those bales to be tendered against the board, especially if the board inverse continues to grow.  We saw a few thousand new certificated bales show up today, probably as a precursor for things to come.  It is always pretty dicey for someone like me to try and pick a top, especially when the chart looks the way that it does and the speculator has the kind of money they have, but I think the old crop market is within 150 points of a pretty formidable high.  In fact, for those that deal in hocus pocus, today's high of .6666 would scare me as a short.  Buy this old crop market under .6200 and sell it above .6500, I'm sticking to my guns on that until I'm proven wrong.  As for new crop, I wouldn't dissuade someone from wanting to sell some cotton in here at .6550, but I would probably try to wait for another 100-200 points with so many unknowns out there at the moment.  As I mentioned in my last update, the fact that 60% of the US's 2015 cotton acreage lies in the state of Texas has reduced my bearish fever somewhat.  While I still believe that the long term weather forecast favors a better than average crop being produced, it is way too early to start to assume that to be the case.  We will have to watch Mid South weather and see if they can get a break to plant the remainder of their corn and soybean crop; if not we could see a small uptick in cotton acres out there even if producers there act and talk as if they rather get waterboarded than plant a seed of cotton. With these temperatures in Georgia starting to rise and looking at potential record highs later this week, we could see some dryland acreage start to go in pretty soon if we can scare up a rain cloud.  For those of you itching to sell a little 2015 cotton and honestly I haven't heard from many that are, lets wait and see if we can challenge that recent high at .6655 before doing so.  Even if the front of the board has a big break as I think it might, the December shouldn't fall nearly as hard with so many variables still out there.  Tomorrow and Thursday should be interesting days for the cotton trade, something we haven't seen it a pretty good while.