Ag Market Update - December 2, 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     

 

Mar 16 Cotton           .6393              .6325              .6350             - .0004           - .0195

Dec 16 Cotton           .6502              .6457              .6501             + .0021          - .0077

Dec 17 Cotton                                                         .6464             + .0015

Sep 16 Corn             3.8800           3.8475             3.8550            - .0275          - .3950

Nov 16 Soy              9.1300            9.0225             9.1050            + .0350         - .8150

July 16 Wheat          4.8725            4.8050             4.8125            - .0550          - 1.1575

 

Cotton LDP Payment 5.11 c/lb. (estimated 4.14 beginning Friday)

Today's Market Report
Down Monday, Up Tuesday, asleep on Wednesday goes our March cotton market, with no rhyme or reason or method to its madness.  Despite trading nearly 20,000 contracts today, the cotton market closed mixed within tight ranges.  March settled at .6350, down 4 ticks, while next December was 21 points higher, closing at .6501.  Our commodity and equity markets were predominately bearish today, due to the strength of the dollar and comments by the Fed Chair that the domestic economy is fairly strong and the much anticipated interest rate hike in December is likely.  Again, I'm on record as saying I'll believe it when I see it, but those trading the US dollar are certainly believing it.  Despite faltering late in the session, the US dollar traded to levels not seen since 2003 today, when the spot contract touched 100.545.  This strength led to weakness across the board as corn, cattle gold, crude oil, stocks, you name it with the exception of soybeans were all lower today.  Crude oil traded good volume below 40.00 today and many experts are now calling for substantially lower prices going forward.  Seeing as how I hedged some heating oil (diesel fuel) going forward at $1.40 on the board, I'm sure they will turn out to be right and I guess they are already right as  January heating oil settled at 1.3159 today. As for the grains today, corn and wheat were lower while the aforementioned soybean board closed fractionally higher.  I don't know how much higher soybeans can go, but the technical picture is pretty strong at the moment. It looks like they could have another 10-20 cents to run before running into some trouble to me.  Wheat prices are back in the dump as good weather and poor demand continue to be the chief stories.  For most of the year, $5.00 has been strong support for wheat prices and now that level seems to be some pretty stiff resistance. The biggest news surrounding the corn market in recent days has been the release of next year's ethanol mandate from our beloved EPA.  The news has failed to be a big market mover, but the numbers were slightly more favorable than expected.  Refiners will be required to blend 18.11 billion gallons of renewable fuels in 2016, an increase from the agency's 17.4 billion gallons proposed back in May.  The number falls well short of the 22.25 billion gallon target for 2016 set by Congress in 2007.  As we all know, the very controversial Ethanol mandate of 2007 essentially started the Commodity boom that farmers enjoyed from 2008-2012 and with prices back near historic levels (ie at or below the cost of production), we are desperately in need of another trigger for an uptick in prices.
Inside the Cotton Market
As you might imagine, there isn't much to report with specifics to today's cotton market.  The spot market traded a pathetic 58 point range and closed essentially unchanged from yesterday.  We should note that the market did close almost 100 points higher yesterday, recouping much of Monday's losses.  Why did it go up yesterday?  As one of my customers aptly described yesterday, "Because it could."  Regardless, we are now seeing a somewhat trending higher market and thus we are scheduled to see a pretty sizable break in the LDP payment, beginning on Friday.  With the LDP payment of 511 points eligible through tomorrow afternoon, I would expect that payment to be 400 points or maybe a touch lower next week.  Therefore, we are advising our growers to take the 511 point payment on cotton that is either contracted or on recap ready to be sold  by tomorrow afternoon at your respective FSA office.  I still think the market is likely range bound, as we just can't seem to sustain a move above the 200 day moving average, which comes in at .6393 today (not coincidentially today's high).  However, over the last few sessions, the market has had a hard time staying lower when selling has showed up. The remaining cotton in the fields in Texas, Georgia, and the Carolinas continues to be plagued by bad weather and most experts are now thinking the crop is getting smaller as we look forward, which is probably the underlying strength below the current market.  I know that here in our trade area we have certainly lost 100-200 pounds/acre due to the terrible harvest conditions.  And don't even get me started about the quality loss.  For those of you familiar with cotton grading, we probably have 40,000 more bales to gin and I'm pretty certain that we have ginned our last 31 color grade bale of the 2015 crop.   I say all of this to indicate that while we will probably have more sideways action in this market, I would lean toward buying it toward the lower end of the range rather than selling it near the top, I do believe.  Of course, I reserve the right to change that opinion as early as tomorrow.  Tomorrow's export report will be interesting to observe, to see if we can continue the recent trend of higher sales volume.  For now, we will concentrate on getting everyone's LDPs ready and if we have not contacted you thus far today, we will try to do so early in the morning.  Please call the office if you have any questions regarding this procedure.