Ag Market Update - December 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     

 

Mar 16 Cotton          .6489               .6375              .6471              + .0076         - .0074

Dec 16 Cotton          .6550              .6519              .6550               + .0030         - .0028

Dec 17 Cotton                                                        .6469               + .0044

Sep 16 Corn             3.9625            3.9150           3.9625              + .0450         - .3175

Nov 16 Soy              9.2425             9.1150           9.2400             + .0725         - .6800

July 16 Wheat          4.9800             4.9200           4.9600             + .0325         - 1.0100

 

Cotton LDP Payment - 4.05 cents/lb.

Today's Market Report
It was a good end of the week for agricultural commodities, with moderate gains across the board for row crop commodities.  The cotton market closed out its best week in recent memory, settling 76 points higher in March (.6471) and 30 points in next December's trading (.6550).  For the week, March closed higher four out of five days and gained 78 points despite a 130 point loss on Monday.  Technically, a definitive "up-trend" is currently in place for cotton prices.  The big winner this week were soybeans.  We mentioned last week that beans had posted an outside week higher and the "poverty peas" certainly followed through with vigorous vigor.  Since posting a low of 8.42/bushel on November 23rd, we have gained 82 cents in the January contract to close today at 9.24.  Corn and wheat were also higher today but seemed to have been riding the coattails of soybeans in doing so.  Both closed 4-6 cents higher today and are also higher on the week.  For a year that has been pretty depressing for agricultural commodities, price-wise, this was a much-needed bovine week for prices.  As technically strong as soybeans were a week ago, the finish today on the corn chart looks similarly impressive.  If we can run March corn back toward the all-important $4.00 mark, that should translate to new crop prices approaching $4.20-$4.25 and we would want to put some hedges on the books for 2016 corn in that price range.  Outside markets rebounded strongly as well today after being mostly lower yesterday.  We saw the US dollar index fall completely out of bed yesterday in reaction to unfavorable stimulus news out of the European Central Bank, which led to large losses in the New York stock markets as well.  Calmer heads have prevailed today and the dollar is back on an upward march, while the Dow Jones is up by 350 points as of this writing. The only big loser today is crude oil, down more than $1.00/barrel as news out of the latest OPEC meeting leaned toward continued heavy pumping of oil despite the current low price for the product.  Crude oil is trading dead on $40.00/barrel as I type.
Inside the Cotton Market
 As I said earlier, it has been a good week for cotton prices in general, even if prices received by growers don't necessarily get better.  We moved the market higher by almost 100 points this week, but as you can see above, the LDP moved lower by more than 100 points from last week's 5.11 cents/lb payment.  Luckily, we are able to see this move coming each week and either redeem cotton from the loan or "POP" cotton ahead of time to take advantage of the updraft in prices as we recommended doing on Wednesday.  Here at McCleskey Cotton, our growers took the LDP on upwards of 10,000 bales last week and I'm sure the activity was just as great at other gins.  Yesterday and today we sold a large portion of those bales which netted our growers fairly attractive prices, all things considered.  Since making a low of .6228 on Monday, the market moved steadily higher all week and closed today at the highest level in the March contract since August 24th. With all of the recent resistance now consumed, I would expect a new wave of speculative buying to emerge early next week.  If you weren't familiar with cotton's overall daunting bearish fundamentals, you would be lining up to buy contracts with both hands Sunday night.  We did have some bullish fundamentals in play this week to go with the technical action as we sold a marketing year high 287,000 bales of cotton into the export market last week according to the USDA.  Turkey and Vietnam accounted for more than two-thirds of those purchases, which China remains calmly on the sidelines for the most part.  We are still slow to ship and still way behind historical pace of sales but it does look like the quality concerns that we have talked about for a couple of weeks now are starting to catch the attention of mill buyers around the world. Will this demand be sustained going forward?  That is the question and how that question is answered will determine if this market can move even higher from here.  Personally, I am still pretty skeptical.  I do think we have seen the harvest lows in all likelihood, but I don't know that we are just going to take off from here price-wise, even though the charts do look enticing.  Last year, we put in a similar pattern as we moved sideways to higher from Thanksgiving into Christmas before ultimately putting in THE low in January of this year.  If this move does carry us back toward the .6600 - .6700 level in the next week or so, I think that not only do we want to be selling current crop heavily into the rally but also casting an eye toward the Dec 2016 futures.  I think that I would like to be hedging 10-20% of next year's production at 6700-6800 should we get there.  While stocks outside of China remain tight, unless soybeans and corn move substantially higher, I see more cotton acreage in the United States next year.  The current El Nino pattern also bodes well for heavy precipitation for the West Texas Plains in the January-March time frame.  If both of those come to pass and we see continued selling of government stocks in China and India during Spring/Summer, it will still be hard for the market to maintain a sustained rally.  Lot of ifs and maybes in there and we would not want to sell a tremendous amount forward but it seems the right place to me to dip our proverbial toe in the water. It will certainly be interesting to see if the speculators come after the market hard from the buying side on Monday and how the hedge selling goes into it if that is the case.  For now, I think its just a good selling opportunity into a nice little false rally.  We shall see.  Hope everyone has a nice weekend and that we can get back into the fields and finish harvesting this forgetful crop of cotton.