Ag Market Update - August 23, 2015


by Ron Lee


Highway 118 West, PO Box 171

Bronwood, GA 39826




Agricultural Settlements

Commodity                 High                 Low                  Close               Change            YTD     


Dec 15 Cotton          .6675              .6393               .6405             - .0286           - .0037

Dec 16 Cotton          .6400              .6333               .6373             - .0158           - .0205

Dec 17 Cotton                                                         .6477             - .0152 

Sep 15 Corn             3.8175            3.6550             3.8175           + .0500          - .4100

Sep 16 Corn             3.9825            3.8600             3.9825           + .0300          - .2975

Nov 15 Soy              8.8750            8.5500             8.7550            - .1400           - 1.3000

Nov 16 Soy              8.7950            8.5375             8.6775            - .1300           - 1.2425

July 16 Wheat          5.1875            5.0350             5.1775            + .0525          - .7925

Today's Market Report
It was Black Monday for the markets today as the problems that we touched on in China last week that caused the Dow Jones Average to spew 530 points on Friday built upon themselves over a fretful weekend that culminated today with the Dow dropping another 588 points today.  Just near the opening of the market this morning, Dow futures were seeing losses of more than 1000 points and nearly to a level that would have triggered a suspension of trading for stocks.  If anyone took my advice to short the Dow last Wednesday believing that even a broken clock is right twice a day, I'll be more than willing to share in your windfall, assuming you cover the position correctly.  Most everything was down today as the the panic selling in equities spilled over to the commodities to start the week.  Corn, wheat, and pork prices were the notable exceptions.  Cotton prices certainly couldn't resist the purge and December cotton finished nearly limit down on the day.  I will touch on it more below, and there is never a "sure thing" when it comes to trading, but a lower cotton market today was about as close as you can get to one.  December erased 7 sessions worth of gains today, losing 286 points and closing at .6405 and right back into the heart of the old tried and true range.  Technically, like the charts for most everything else, cotton doesn't look very good at the moment.  The performance put in today by the corn market was the most impressive on my board outside of lean hogs which finished limit up.  Corn prices were once off more than 10 cents during the heat of the equity panic this morning around 8:30 am, but made a very nice rally once cooler heads prevailed and ended the day with gains of 4-5 cents.  The recently released crop conditions numbers show a crop that is slightly improved from last week and in good condition for the most part at a 69% good to excellent rating.  Soybeans finished 10-15 cents lower, but considerably off the lows of 30-32 cents we saw early thing morning when we feared the world was coming to an end.  Nevertheless, the soybean market looks terrible technically speaking and further washout is probable at this point.  The crop rating was basically unchanged from last week and the thought is that not very soybeans have been priced by the US farmer.  I would certainly not be surprised to see soybeans trading at or near $8.00 come this fall if the crop remains on a good course.  Outside from the stock markets, crude oil continues to be one of the most closely watched markets.  Oil hit a 6 1/2 year low today and closed near those lows just above 38.00/barrel.  At some point selling a commodity short becomes a proposition that is not worth the risk as something can't be worth less than $0.00.  I certainly don't remember it vividly like it seems that I should, but according to my charts, crude oil prices went as low as $10.35/barrel as recently as December 1998.  I'm not saying that will happen this time, but the more recent low of $32.00 is more likely going to be visited given the current uncertainty regarding the global economy and production surpluses.  Lastly, as we mentioned last week, this current purge in stock markets around the globe is probably going to stick a fork in the idea that the Federal Reserve will raise interest rates next month.  Therefore, we are seeing a strong weakening in the US dollar, down 1700 points today, which could help temper the slide in commodity prices if the trend stays intact.  However, I would have to agree with those that I read that indicate that the Federal Reserve is out of bullets when it comes to helping prop up a flagging economy and while the Fed is looking and hoping for signs of inflation, they are more likely to be gifted with an extended period of deflation.  Tomorrow should be very interesting, to say the least.
Inside the Cotton Market
 I probably should have penned a report on Thursday or Friday of last week, but with cotton prices settling near unchanged both days it was pretty hard to find the words.  As you might imagine that task is not as hard today.  I mentioned earlier that today's selloff in cotton prices was pretty predictable and that was due to the contrary performance we saw in our market late last week.  While the bullish shock from the USDA report on the 12th still fueled buying in our market, it was inevitable to me and most every other analyst in the cotton world that cotton prices would not be able to buck the trend that we were seeing in all of these other markets late last week.  Given the fact that nearly all of the problems we are seeing are originating in China, which is, or at least has been such a global hub for cotton, that just exacerbated the probable downfall we would see in cotton prices.  In other words, the 286 point loss we saw in cotton today really probably should have happened late last week.  Nevertheless, the drop came today in one fell swoop and while the market attempted weakly to get up off the mat a time or two, the close today was very near the lows of the session.  Technically, like most everything else, the cotton chart looks pretty bad once again.  For someone that knows just enough technicals to get in trouble, it's pretty easy to see a bearish breakout from a flag pattern that had been building since the USDA report.  However, as bearish as I've been, that is where I will stop with the negative for now.  Why do you say?  Well, the fact of the matter is that we still don't have any idea on the eventual size of this cotton crop. And therefore, we have simply moved back into the heart of the range that we have enjoyed, or really not enjoyed all year long.  I have said time and again that I think the US crop is substantially bigger than the 13.1 million bale crop that the USDA projected a couple of weeks ago, but the numbers that we have are really the only numbers that we can trade.  And unless the world just goes back into a full blown global recession, if we do indeed make only 13 million bales and have a sub 4.0 million bale US carryout, 64 cents is probably too low.  And for a crop that is projected there in late August, the recent low of 61 cents is certainly too low.  Could we see the crop get bigger as we go through the Fall?  For sure we could and if we do, I think prices will grind lower, especially if other commodities stay in the tank and if grain prices get their usual harvest selling pressure.  However, right now is not the time to move lower in my opinion, despite my eventual bearish bias.  Another reason to be somewhat concerned is the 30-45 day weather forecast.  While I put little confidence in a weather forecast more than 3 days out, much less 30, a wet harvest season is indeed predicted by those that do that type of thing.  We are also seeing the tropics start to heat up.  While Danny looks to be fizzling out, Erica should be right behind him and several computer models have her in the Gulf of Mexico sometime in early September.  While we as cotton farmers welcome a tropical system in July or early August, we never want to see one in September or October with open bolls in the field.  So I think we have to move toward another neutral opinion of the cotton market for now.  For those of you that we priced cotton at .67 - .68 some months back and sold the 68 Dec call, we covered those short calls today which will add 200 points to your fixation, get you very close to .7000 net, and remove the potential for that to move against you.  Like the other markets, tomorrow will be very interesting in the cotton trade.  I don't think we will, but if we see further capitulation in our markets, and we move back closer to those lows of .6100 to .6200, we will probably recommend buying some cheap out of the money calls to protect the upside for those of you with a high percentage of cotton contracted in the mid to upper 60s.  Again, the chance remains that the market will move lower later; I just don't think the time is right just yet. Please don't hesitate to call me with any questions regarding your cotton marketing.