Ag Market Update - February 18, 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          .6544               .6430                .6532               + .0079           + .0425

Dec 15 Cotton           .6550               .6476                .6547               + .0056           + .0105

Dec 16 Cotton                                                              .6347               - .0044            - .0095

Dec 17 Cotton                                                              .6497               - .0044

Sep 15 Corn               4.1250             4.0575             4.0650             - .0575            - .1625

Nov 15 Soy                9.9000             9.7025             9.7650             - .0975            - .2900

July 15 Wheat           5.4225             5.2300             5.2600             - .0900            - .7150

 

Cotton LDP Payment - 4.24 cents

Today's Market Report
 We've mentioned "Up Monday, Down Tuesday" before as a common trading pattern for commodities when there is lack of fundamental news in place to actually trade.  Well, with the markets being closed for the most part on Monday due to President's Day, we have started the week with a textbook "Up Tuesday, Down Wednesday" pattern with one exception: cotton. While most all other commodities took it on the chin today, cotton bucked the trend and powered to fresh new highs once again amid strong speculative buying.  May cotton gained 79 points to finish the session at .6532, while new crop December was higher as well, settling at .6547, up 56.  It will probably be another edition of So Goes Crude, So Goes Commodities, but the grains were pretty weak from the get go today.  On a percentage basis, wheat led the way lower, losing nearly a dime per bushel as Egypt canceled a tender they made yesterday for a shipment of US wheat.  News for corn and soybeans was pretty limited today, but each closed with moderate to heavy losses.  Corn prices were off by 5-6 cents, while soybeans were down 11-13 cents.  Noticing the Brock Report today after they just completed their annual Ag Economic Outlook down in Destin, FL yesterday, they seem to think that while soybean acres will be higher, the shift from corn to soybeans might not be as pronounced as everyone presumes. As I mentioned earlier, it's been a down day for crude oil and its associated products on Wednesday.  Crude oil is off by nearly $2.00/barrel, while heating oil is down by more than a nickel. After a 40 cent increase in heating oil aka diesel fuel, a pullback in prices would certainly not be a surprise.  For those that do hedge fuel, I think a further decline in those prices would be a fine opportunity to hedge a product that will cost you 32% less than it did one year ago.  As for the stock markets, it has been a most uninteresting day with the Dow off less than 20 points and the S&P down 2 after setting a new record high yesterday.
Inside the Cotton Market
 It's more of the same for cotton today as speculators continue to be driven out of their losing short positions and some are getting froggy enough to get long the May and July contracts.  May cotton closed at its highest level in exactly five months today, going back to the .6595 high on September 18, 2014.  The next obvious target for the May contract is the extremely important 200-day moving average which comes in today at .6709, or about 150 points away from today's close.  Today's price action wasn't without incident as prices were 70-80 higher at 9:00, only to see them drop back to just under yesterday's settlement around the traditional 10:30 opening.  However, in a most bullish manner, a bid caught around .6450 and the market moved back steadily toward the eventual high late in the session.  While there remains a myriad of bullish factors associated with the market including a very small number of certificated stock bales, a low level of overall open interest which should lead to speculative buying, and real lack of high grade available cotton left in the country, I still can not buy into the theory that prices are about to just take back off and zoom higher.  I am keeping a very close watch on that 200 day moving average and if I had cotton still to sell, I believe I would let someone else own it as we approach that level. At the possibility of 6700 plus a positive basis plus the 500-700 LDP that most took, you are looking at a sales price of upwards of .7500 !  As I mentioned yesterday, we still have millions of bales hanging over this market in the Indian MSP program that must be sold at some point in time, in addition to the problems going on in Turkey.  While the market is technically very bullish, I can't be along for the ride very much longer.  In the same vein, I would be looking to price a small amount of new crop December if we can take that contract another 150-200 points higher as well.  I just can't see December exploding out of here before an acre of seed is in the ground and would still like to sell some options (a marginable positions mind you) in association with hedging this cotton for next year.  We will need to watch the market very closely over the next couple of days.  Exports, which were the sole catalyst for this 800 point move higher, will be delayed to Friday due to the President's Day holiday.  We will also be in Memphis late next week to hear the market commentary from Joe Nicosia at the Mid-South Farm and Gin show, which is always greatly anticipated and informative.  For those of you that have entrusted me to help you with your cotton marketing plan for 2015, be on the lookout for specific hedging advice in the coming days. 

Lastly, it was brought to my attention by one of our customers last week that, like for most everything else in the world, there is a neat little "app" for smartphones when in comes to the current Farm Bill and how to anticipate where a payment might trigger for different crops, including the STAX or SCO program for cotton.  If you have a smartphone, you should be able to search by typing "RMA Mobile" to access the application.  I'm still fiddling with it myself, but it looks to be a very useful and informative tool.  Also remember, you only have until the end of next week to visit your local FSA office to make base reallocations, yield updates, and PLC/ARC decisions.  In that vein, I bet the folks at the FSA offices around the country can't wait for March to get here !