Ag Market Update - February 17, 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     

 

May 15 Cotton          .6474                .6293               .6453               + .0121           + .0346

Dec 15 Cotton           .6494                .6376               .6491               + .0084           + .0049

Dec 16 Cotton                                                              .6391               - .0003            - .0187

Dec 17 Cotton                                                              .6541               - .0003

Sep 15 Corn               4.1250             4.0725             4.1225            + .0300            - .1050

Nov 15 Soy                9.8750             9.7075             9.8625             + .1525           - .1925

July 15 Wheat          5.4850             5.3175             5.3500              + .0275           - .6250

 

Cotton LDP Payment - 4.24 cents

Today's Market Report
 It was another good day for commodities as everything is tending to go as crude oil goes for the foreseeable future.  Cotton prices, along with most other agriculturals, continue to move higher and after a three-day weekend, triple digit gains were a welcomed sight.  May cotton, which now holds the largest of the open interest, gained 121 points today, closing at .6453 and at the highest level since October 29th of last year.  New crop December tagged along for the most part, settling at .6491 and at the highest point since the first trading day of 2015.  The big winner in the grain trade today were soybeans, which moved 15-17 cents higher, presumably on a higher than anticipated soybean crush number.  November soybeans closed with three cents of its 100 day moving average at 9.89, so we will watch closely if that level thwarts any additional upside pressure or gives way to additional buying in much the same manner we saw in cotton some days ago when the 100 day average was breached.  Corn and wheat were higher on Tuesday, but to a lesser extent with both commodities gaining 2-3 cents on the day.  As mentioned earlier, crude oil and energy derivitatives have been steadily gaining over the last couple of weeks and were higher again today, which is providing as a catalyst for other commodities to move higher. The fact that the dollar index is no longer screaming higher and has thus far been held in check by the 2003 highs is also helping the commodity bull cause currently.  US stock indexes mostly fluctuated on Tuesday, but are poised to finish the session higher as optimism about another deal regarding the Greek debt crisis was positively received by investors.
Inside the Cotton Market
 The theme that we've touched on over the last few weeks remains the same for now as buyers outnumber sellers, which is continuing to move the market higher.  Since our last update last Tuesday the market has been able to deal with some less-than-good news and still grind out a weekly gain of more than 250 points.  In addition to the now staggering figure of 110 million bales of projected ending stocks, we saw export sales cool off last week to 78,000 bales on a net number due to more than 100,000 of cancellations out of Turkey, with more feared as a large mill in that country is reported to face considerable financial difficulties.  Nevertheless, speculative shorts have been getting out of the way allowing the market to move higher.  We still see a large amount of trade shorts in the market, which could be setting up a showdown as we approach First Notice Day for the March contract.  However, with certificated stock at less than 10,000 bales, the equation looks less than easy to figure.  I guess with the new rules allowing almost instant certification, we could see the number of certificated bales grow very quickly if one wants to deliver.  However, with significant basis premium still in the market and projected 14-15 ending stocks continuing to be reduced, I can't see how that is a viable option either.  As I've said many times, shenanigans around delivery time probably aren't something I nor those that I watch the market for need to worry about too terribly much or try to figure out.  Instead, we should be looking toward India for our next market cue.  The Indians still have a large block of cotton held up in their MSP program that they will have to unload at some point.  While the market looks super bullish technically with regard to old crop contracts, this Indian cotton will still serve as a ceiling for prices, depending on when and where the Indian government decides to start unloading this cotton on the export market.  Where that price point is is anyone's guess, but I would find it very hard to make a case for old crop contracts to move much beyond .66 or .67 cents.  At 70 cents, I would certainly be a seller.  As for new crop, we continue to ride the old crop coattails and with soybeans and corn seemingly putting an interim bottom in, prices look firm for the near future.  December futures have bounced some 300 points off the .6150 low from January and with today's strong technical close, a run to the .66 to .67 highs late last year is certainly well within reach. It will be very interesting to see where growers are willing to start contracting cotton for next season.  With a traditionally strong forward basis of even December, I would think .6700 would be a pretty good place to start.  There is a tremendous amount of water to still pass under the bridge for old crop prices and most certainly for new crop prices, and while I remain cautiously optimistic that prices can go a tad bit higher in the short term, I think we want to be ready to start looking at the short side of cotton, certainly if we approach 70 cents.