Ag Market Update - August 4, 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          .6425             .6337               .6364              - .0036          - .0078

Dec 16 Cotton          .6365             .6364               .6364              - .0038          - .0214

Dec 17 Cotton                                                        .6435              - .0039

Sep 15 Corn            3.7275           3.6675             3.6900             + .0250        - .5375

Sep 16 Corn            3.9450           3.9000             3.9200            + .0350        - .3600

Nov 15 Soy             9.4900           9.3325              9.4325            + .0775        - .6225

Nov 16 Soy             9.1500           9.0750              9.0975            + .0525        - .8225

July 16 Wheat         5.2725           5.1600              5.1650            - .0225         - .8050

Today's Market Report
I've said it before and again, I'll tip my cap to those that are witty enough to produce a daily cotton market letter.  In times like these, I simply don't know how they come up with the material.  The cotton market today was once again lethargic at best, losing 36 points in the widely traded December cotton to settle at .6364, exactly nine entire ticks higher than our last update from last Thursday.   Corn and soybeans had somewhat of a "Turnaround Tuesday" as unchanged crop conditions and a lower US dollar (for most of the day) led to moderate gains for those commodities.  Corn settled 2-3 cents higher, while soybeans gained 5-7 on the day.  Wheat prices were higher in tandem with corn and beans early, but faded late to lose 2-5 cents.  Fundamentally, nothing has really changed from our last update with regards to the grain crops as weather concerns are largely absent and demand remains somewhat tepid. It could really be a grind for the next five trading sessions until August 12th, when we get a new set of supply and demand numbers from the USDA, numbers that are derived from actual field surveys.  Unless we get a huge surprise from the agency, one would have to believe the huge spike that we saw in corn, soybeans, and wheat prices gave growers their best opportunity to forward contract 2015 and possibly 2016 production, and prices will most likely stagnate or easy lower with harvest pressure if weather concerns remain at bay.  In outside markets, the dollar has made a late day rally, possibly due to comments by the chairman of the Atlanta branch of the Federal Reserve which indicated that he believed a interest rate hike was indeed imminent next month. In our absence over the last few sessions, the biggest move has been in the energy markets as crude oil and its derivatives have sunk to multi-month lows.  Crude oil is higher today, gaining about 50 cents, and trading around $45.50 per barrel.  The early year lows around $42.00 are certainly seemingly within the bears' reach.  Gasoline futures are trading around $1.70 currently, but should drop some 20 cents next month as they switch to the winter blend and the summer driving season slows down.  It certainly seems that gasoline prices, diesel prices, and possibility natural gas prices will be very easy to for the US consumer to stomach come this fall and winter.  Stock market values are slightly lower on the day as the domestic markets continue to be nervous over the situation regarding the Chinese equity markets.
Inside the Cotton Market
 As I mentioned earlier, the cotton market continues to go nowhere fast. News items seem few and far between.  I am reminded of the old axiom "Never short a dull market" even as I see absolutely nothing on the horizon shy of a natural disaster that should make this market move higher in the short term. This December market is stuck between a very tight range of .6320 and .6450 which has held the market in check for the largest part of the last week or so.  With virtually no export inquiry outside of some scant business into Turkey, very little weather concerns across the Northern Hemisphere, and the 40, 100, and 200 day moving averages starting to turn lower, someone with no skin in the game would naturally deduce that the .6320 would be vulnerable before the .6450 would be.  However, as I have said for basically the last month or so, with a good 4-6 weeks before we really know what kind of crop we have, there is really no reason for someone to try and push this market lower from this level.  Areas of West Texas did see beneficial showers over the weekend, but the large dry land areas south of Lubbock largely went without rainfall.  Showers in South Georgia remain scattered but largely beneficial to most areas.  I don't know of a single area in the cotton-growing area of Georgia that would term their crop as in bad shape, although I'm sure some isolated dry pockets do exist.  In yesterday's crop condition report, the numbers were largely unchanged from the previous week.  The crop, belt-wide, is 4-5% behind schedule on the 5-year average but is gaining ground with widespread heat units accumulating.  One thing that does concern me somewhat as we see our warmest summer in probably four to five years here in Georgia is the possibility of high micronaire values in our bales.  The last few summers have largely been on the cooler side and we have seen that reflection in a near perfect micronaire range when the cotton came in during the fall.  Hopefully, this will not be a concern, but the extreme heat does lend the chance of it happening. Marketing possibilities remain very limited with December in the .6300 - .6500 range and very, very little volatility on the horizon.  There is little to no rhyme or reason with regard to spreads and carry in our market.  The December contract is basically trading even with the March contract.  December 2015 and December 2016 both closed at .6364 today denoting even more apathy the further out you look.  Some will tell you that if cotton prices move lower, nobody will be able to plant cotton next year.  As long as competing crops remain stagnant at lower levels, I'm not sure how that makes sense, considering the loan program basically sets the floor for cotton prices at or near current levels via the LDP.   As I've said for months now, in my opinion, the best way to rejuvenate cotton demand and thus getting prices headed back on a northward course is for prices to wash out, low enough so that you do bring demand back.  Sitting here at .6300 - .6500 is truly "No Man's Land", although we will likely do just that through at least next Wednesday's USDA numbers, and probably until Labor Day if the current course remains the same for the Northern Hemisphere crop.  If the crop remains on course then, nothing short of a early West Texas freeze will keep this market from moving into the 50s in my novice opinion.