Ag Market Update - August 19, 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     

 

Dec 15 Cotton          .6680              .6583              .6653              - .0010           + .0211

Dec 16 Cotton          .6494              .6470              .6489              + .0021          - .0089

Dec 17 Cotton                                                        .6587              + .0014

Sep 15 Corn             3.7200            3.6575            3.6725            + .0100          - .5550

Sep 16 Corn             3.9800            3.9225            3.9275            - .0200           - .3525

Nov 15 Soy              9.0900            8.9075             8.9500            - .0925           - 1.1050

Nov 16 Soy              8.9675            8.8175             8.8550            - .0500           - 1.0650

July 16 Wheat          5.1225            5.0500             5.0900            - .0100           - .8800

 

Today's Market Report
 It's been one week since we filed a report, one week since the eye-popping USDA August crop report that sent cotton prices soaring and grain prices plummeting.  Since then, cotton prices have continued to firm, corn prices have leveled out, and soybean prices have made new lows. Today, prices were pretty quiet with the exception of soybeans, which once again made a new low.  Cotton did break a 5-day winning streak in the December 2015 contract, but with only fractional losses of 10 points, settling at .6653.  Corn prices were higher early on the idea that many major corn growing states will have lower yields than the USDA is carrying based on the current on-going Pro Farmer crop tour.  However, prices softened late and corn prices finished mixed from up a penny to down a penny. Soybeans prices closed below 9.00 in the November contract for, I think, the first time and by settling at 8.95 might open a new wave of speculative selling.  Wheat prices were also mixed on either side of unchanged today.  Looking at my screen, there is very little trading higher today with the exception of gold and the other precious metals as investors are back to seeking a "safe haven" for assets as the world economy seems to be still be in a state of flux, with the Chinese situation still front and center.  Crude oil prices hit a six-year low today, and the spot month crude price is now barely above $40.00/barrel as inventories continue to build while concerns about the economy dampens hope for improved demand.  As mentioned in earlier reports, it would appear that gasoline prices at the pump are certainly headed toward sub $2.00 levels come early Fall. In remarks made this afternoon, the chair of the Federal Reserve continued to say a whole lot of nothing, basically saying that a interest rate hike was on the horizon but that continued job growth was needed.  After these remarks, the stock markets pared losses, but were still negative on the day.  I'm probably the world's most uninformed stock picker, but I would certainly be inclined to sell the industrial averages short at this point, seeing how bad things look in China for the foreseeable future.
Inside the Cotton Market
Cotton prices continue to trudge higher amid a huge cloud of uncertainty still left in the wake of last week's USDA Supply/Demand numbers that the entire industry is still having a hard time digesting.  Cotton prices have moved from last week's low of .6120 to the current level of .6653 in the December contract, and have traded as high as .6689.  While a nearly 600 point move in a week's time is nothing to sneeze at, I would have to believe that the gain would have been closer to 1000-1200 points if the cotton trade actually believed those numbers.  Even yesterday and today, we saw buying really slow down as we move back toward the top of the tired ole range of .6100 - .6800.  I would have to believe that major resistance lies within that .6811 price that we posted just six or seven weeks ago. In fact, I still believe the market will have a hard time moving through the .6700 area, which thus far has held the rally in check.  In all actuality, we want have any further clarification on the true size and scope of the crop until the September crop report at the earliest.  On a conference call earlier today, growers from all over the state of Texas had a different assessment of their crop, so the confusion is real.  However, only one that I heard agreed with the USDA number, all of the others thought that their crop potential was greater than that reported by the agency.  The one key that everyone mentioned was the fact that the crop was indeed late and heat units would be needed through the end of September.  I am still of the opinion that this is a seller's market, but I do have to give at least a modicum of respect to the USDA and their numbers until we see revisions down the line.  As for Georgia, scattered showers have hit many areas, including here at home, over the last several days and the crop has outstanding potential.  Bolls are starting to pop open, which is always the first visual evidence for me that the ginning season isn't very far away.  On one hand I am glad there is no cotton ready to be ginned, because we aren't quite finished with gin repairs.  However, if we were able to pick some cotton this week, we would have been able to really lock in some profitable spreads considering the LDP payment has been over 500 points this week.  With the ability to POP cotton in the module, we could have surely priced cotton in the low to mid 70s this week.  Unfortunately, that LDP payment will be closer to 100 points next week as the average world price has moved higher.  All of this is a moot point considering we are still probably 3-4 weeks from defoliation, but just to remind you that we will need to maximize the potential LDP payment this fall to make sure that you, the grower, will get the most that you possibly can for your cotton.  In addition, there is very, very little cotton forward contracted in the United States and the expectation is that merchants will probably pay handsomely for early, quality bales that can be shipped quickly.  I say all of this point out that with the prospects for higher than average yields, when a grower looks at all sources of cotton income: the market, the quality premiums, a potential LDP, and cottonseed, the picture for cotton production in Georgia may not be near as bleak as one would think.  We will watch how the market trades for the balance of the week; we get the weekly export report in the morning and then September options expire on Friday.  I can't imagine that the export report would give the bulls any more ammunition but I have been wrong before, as in recently wrong.  My guess is that the market will gravitate back toward the .6500 level that has basically been the barometer for cotton prices all year until we get further clarification from the USDA and from actual field data.  I do think the bullish numbers put forth from the USDA will solidify the recent .6120 as a key low going forward.  My ideas of prices moving into the mid to upper 50s will only bear out if my ideas of the domestic and global crop, along with export demand is confirmed over the next several months versus the ideas of the USDA which certainly have more people on the ground and crunching the numbers than this party of one does.  The market should move slightly lower in the short term, but sideways into September.