Ag Market Update - February 2, 2016

 

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           .6250              .6149              .6230              + .0051         - .0098

Dec 16 Cotton           .6245             .6161              .6241               + .0057        - .0329

Dec 17 Cotton                                                        .6434               + .0058        - .0011

Sep 16 Corn            3.8700            3.8275            3.8650             + .0175         + .1125

Nov 16 Soybeans    8.9800            8.8800            8.9675             + .0650         + .1400

July 16 Wheat          4.9200            4.8300            4.8575             unch             + .0250

 

Cotton LDP Payment - 5.11 cents

Today's Market Report
The first two days of this work week have finally given us a little validation over the beliefs that we should see the cotton market start to turn higher.  Yesterday, the March market gained 66 points and then tacked on another 51 points today to settle at .6230, the highest close since January 22nd. The move in cotton has been impressive as the ongoing bloodbath in crude oil and the equity markets has continued this week and obviously been of little help to our primary market.  Another impressive feature of today's action was the very impressive turnover of nearly 50,000 contracts, including some new interest in the new crop December contract which settled 57 points higher at .6241. The grain complex continues to slowly but surely move higher as we reported last week.  Corn was lower for most of the day before rallying late and settling with gains of 1-2 cents.  Soybeans were higher by 5-7 cents, while wheat was mostly unchanged. The corn and soybean markets are now trading at levels not seen since before Christmas and technically look rather strong.  We don't mention politics very much in this space like we used to, but should be noted that Ted Cruz's win in Iowa speaks to the waning influence of the Ethanol sector of the economy there as the industry and many state politicians, including the Governor, had mobilized against Cruz, due to his previous indications and many's beliefs that he would do away with the ethanol mandate should he end up in the White House. In fact most of the news in the grain trade would be considered bearish as plentiful supplies, good Southern Hemisphere weather and a strong dollar conspire against corn, soybeans, and wheat.  However, we are now entering the months were when supplies were tight, we saw tremendous "acreage battles" through higher commodity prices.  While the path for prices of corn and soybean will ultimately be determined by weather in the Midwest this summer, it might not be a bad idea for aggressive marketers to take advantage of this stronger seasonal price to get some 2016 production hedged. While we still believe that the lows are in for crude oil at just above $26.00 a couple weeks ago, the first two days of trading this week has done nothing to make me feel warm and fuzzy about that prediction.  Crude oil is down 1.70 as I type this, and is again trading below $30.00/barrel.  If the proposed decreases in production from Russia and Saudi Arabia don't come to fruition, I might have been premature in that call on the low in oil. Stock markets are continuing their dismal 2016 as the Dow is down 273 points today.  I think I'd rather open a virus on my computer than dare to open the page showing my 401K performance thus far in 2016.
Inside the Cotton Market
The cotton market, while still in no-man's land, as far as prices go is once again showing some signs of life as mentioned in the section above. Cotton prices challenged the .6050 area several times last week and were able to move higher Friday, Monday, and today.  Yesterday prices pushed above the 20-day moving average and today threatened the 100-day average at .6239 with several contracts trading above that level before closing just below at .6230. It may be wishful thinking but I have my eye on the 200-day average at .6357 as a probable target in the coming days.  Exports last Friday were still pretty pedestrian, although shipments did see a pickup. The move higher was sparked by a sizeable decertification last week which now sees a deliverable supply at only 28,000 bales. While delivery for March is still several weeks away, the open interest of 103,000 contracts (or 10,300,000 bales) implies someone could try to squeeze the shorts a little as we head toward calendar March. If we don't see a pretty good reduction in March open interest tomorrow considering the large volume day today, something will seem rather fishy. Basis levels for cotton continue to remain fairly strong, particularly considering the oversupply of lower grading cotton in our region. If you happen to have a large batch of 21-31 or even 41 grades with 36+ staple and good strength, you are holding the proverbial "Golden Egg" in my opinion.  However, I can't imagine many of those bales are still in grower hands.  At some point I believe that US exports will have to pick up considering how aggressive some merchants are and the fact that comparative African growths are said be almost sold out and the Indian crop continues to get smaller.  The impending news regarding the Chinese Reserve release continues to be the 800-lb gorilla in the room and we think we will see some sort of announcement after they return from one of their several dozen holidays in the next couple of weeks.  As pricing cotton, we have just under 10,000 bales left to sell here at McCleskey Cotton and would like to think if we can move toward that .6350 area where the 200-day average rests, we would be much lighter than that as I have advised growers to rid themselves of the remainder of their cotton should we get there.  Remaining in the market via July calls might not be a bad idea for those more aggressive marketers.

McCleskey Cotton customers should be looking for ginning/cottonseed rebate checks in the mail late this week/early next week.  While cottonseed was considerably lighter and of worse quality this year due to the terrible harvest weather, the price remained at profitable levels throughout the Fall.  We are pleased to return this money to our growers and hope it will go a long way to helping your bottom line on what we all know was a very tight season, profitability wise. I will be out of the office after lunch on Thursday and on Friday, but will have my cell phone as I travel.  Please call me with any questions regarding your check and as always, we appreciate your business, support, and friendship.