Ag Market Update - February 10, 2015


by Ron Lee


Highway 118 West, PO Box 171

Bronwood, GA 39826




Agricultural Settlements

Commodity                 High                 Low                  Close               Change            YTD     


Mar 15 Cotton            .6344               .6213               .6251               + .0021           + .0224

Dec 15 Cotton            .6437               .6350                .6388               - .0007            - .0054

Dec 16 Cotton                                                               .6435               - .0016            - .0143

Dec 17 Cotton                                                               .6585               - .0016

Sep 15 Corn                4.1275             4.0625             4.1000             - .0300            - .1275

Nov 15 Soy                 9.6975             9.5200             9.5375             - .1075            - .5175

Jul 15 Wheat             5.3450             5.2225              5.2625             - .0575            - .7125


Cotton LDP Payment - 5.51 cents through Thursday

Today's Market Report
Old crop cotton scratched out another positive performance on Tuesday, the eighth in eleven sessions, but considering the momentum we had early on in the session, gains of 21 points in March and 16 points in May would have to be considered a disappointing performance.  For the day, March cotton settled at .6251, May at .6289, and new crop December actually closed fractionally lower at .6388.  On a day when the USDA gave its monthly Supply/Demand numbers, bullish domestic numbers were once again overwhelmed by bearish world numbers.  The grain markets all finished lower as well today as it would seem that renewed weakness in crude oil and a surge in the value of the dollar did more damage to that sector than USDA figures were responsible for.  Actually, as report days go, while volume was huge in cotton, the trading action in all agricultural commodities was rather subdued.  Corn prices were off by 2-3 cents, soybeans down 10-11, and wheat dropped 5-8 cents.  Projected ending stocks for both corn and soybeans were reduced from January estimates and slightly lower than trade estimates, but not nearly a big enough reduction to stimulate prices.  Wheat figures were largely unchanged from last month. Once again, much like cotton, the burgeoning world stocks of these grain commodities continue to weigh on prices and likely will for the foreseeable future.  The stock markets and the dollar are both moderately stronger today, while crude oil is off by $2.30/barrel.  For those needing a little more doom and gloom for the forecast for those of us on the farm, Bloomberg produced this piece today, which talks about the big forecast reduction in on-farm income for 2015.

Inside the Cotton Market
 In the same theme that we reported last week, the huge surge in export demand of US grown cotton has seeming put a bottom in this market, one that we saw at .5705 on January 23rd.  Since then, we've seen prices rise more than 600 points to today's high of .6344, the highest price for cotton since November 12th.  Not coincidentally, over that time frame we have sold nearly 2 million bales into an export market that was only expected to receive 10 million bales for the entire marketing year.  Therefore, in anticipation of the USDA raising the export estimate at noon today, the market ran more shorts out of their position around 9:30 am this morning.  Unfortunately, while the USDA did boost exports by 700,000 bales to 10.7 million, they reduced domestic consumption by 150,000 bales.  In addition, they lowered world consumption and increased world production which is never a good thing for prices.  In the end, we now have a world carryout that is a new historical glut at 110 million bales. In response, prices fell from their highs of the day, month, and quarter at .6344 and closed meekly at .6251, and back within the recent longer range.  As you can see, we continue to have a huge paradox when it comes to the cotton market.  We have numbers here in the US that are relatively tight, and are extremely tight when you consider premium high-grade desirable bales versus a world situation that is arguably more bearish than when cotton traded at .2800 after 9/11 in 2001.  In my mind, there just seems no way to rid ourselves of the 1200 lb bear in the room, pun intended, when China and India continue to subsidize their cotton grower with no defined way to rid themselves of their stocks. On the flip side, here in the US, we can't risk the market going much lower than we are now because we might sell completely out of our own cotton because we are seemingly the only ones willing to sell our bales and it is taking a market plus LDP plus historically high basis, even for us to sell the cotton.  Throw in the fact that at some point, if the market goes higher, the millions of bales that the Indians are holding in their MSP will start to find its way into the export channel.  So, where do we go from here?  While I would favor a further increase in the March and May contracts in the short term as we flush unsuspecting shorts and would seemingly have multiple takers of the cert stock associated with March delivery,  the world situation obviously will keep a lid on prices.  You simply can't have 110 million bales of cotton, enough to run the world's mills until July of 2016 without planting a crop anywhere in the Northern Hemisphere this year, and it be construed as bullish in any shape, size or fashion. I can make an argument for March or May moving to the .6500 area, but I have a hard time justifying much more than that.

Looking at new crop December and that is what I'm guessing 95%+ of you are wondering about anyway, I just can't see a whole lot of anything going on here.  I just returned from the National Cotton Council meeting over the weekend where they reported that cotton acreage would be down 14.6% to 9.4 million acres in 2015.  It should be noted that when this survey was conducted, soybean prices were higher and cotton prices were lower than where they currently sit so this could conceivably be tad low when it comes to eventual planted acreage.  To get off course for a second and I generally hate to get on the same side of the boat as everyone else, but if you want to be really bearish a commodity, I still think soybeans are your best bet.  It seems that everyone is ready to plant a pile of soybeans and very few have been forward contracted.  With a decent crop, there is going to be a world of soybeans to sell at some point.  But back to cotton, if we do reduce acres by 15% and it is simply hard for me to believe that cotton acreage in places like Arkansas and Tennessee will be off by the nearly 40% figure the NCC reported, a crop of 14.1 million bales could be easily gathered on that acreage. 14.1 million bales of production would not be boon for prices in a year where we would expect exports to decrease.   And while a seed hasn't been planted in the Northern Hemisphere, all indications are that if world consumption does outpace world production this year, it will only be by the slightest of margins.  Therefore, more than likely, when I am writing this report a year from now, we will STILL be having 110 million bales of cotton hanging over our heads.  Therefore, if I were charged with formulating a marketing plan for 2015, I would look to see if the old crop numbers, which are bullish here in the US and in the US only, continue to move March and May higher and can SOMEHOW pull December and March 2016 begrudgingly higher, like toward .6700, .6800, I would be pricing a percentage of my crop and selling options to collect premium via time decay.  At the end of the day, I just don't think this market is going anywhere as long governments around the world, namely China and India, continue to try to re-write the rules of Supply and Demand.