Ag Market Update - February 22, 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     

 

May 16 Cotton          .6016              .5860              .5869              - .0085           - .0542

Dec 16 Cotton          .5994              .5886              .5892              - .0064           - .0580

Dec 17 Cotton          .6299              .6250              .6250              - .0021           - .0195

Sep 16 Corn             3.8275            3.7925            3.8275            + .0400          + .0750

Nov 16 Soy               8.9625            8.8975            8.9125            + .0275          + .0850

July 16 Wheat          4.7675            4.7075            4.7175             - .0225           - .1150

 

Cotton LDP Payment - 7.31 cents

Today's Market Report
Last we talked, cotton prices, along with most everything else, were tenuously on the verge of a Technical Knockout.  In the week and a half since our last update, most every other commodity market and most stock markets have been able to get a few jabs and punches in and have staved off that knockout, at least for the time being.  The cotton market was trying to do the same, moving some 200 points off the lows in recent days, and giving the impression that a move back into the heart of the 14 month range was imminent.  However, today as the March contract traded for the last day before the delivery period starts, it would appear that a few reckless folks stayed past the point of welcome on the long side.  After reaching .6065 in early morning trading, the shorts put the hammer down and we saw the March contract slip more than 300 points, before settling at .5774, down 227 points.  The May contract, that we are now working off of for those still holding cotton, was dragged down by the implosion, losing 85 points and closing at .5869.  So after all that and in our absence last week, today the May settled exactly 2 points below our last update from the 11th.  The grains continue to trade mainly sideways to slightly higher and corn and soybeans were both higher today by 3-4 cents.  Wheat, on the other hand, continues to struggle mightily, and lost 1-3 cents.  Needless to say, that almost two months into 2016, corn and soybeans are getting the best of cotton and wheat, if this were an old fashion NWA tag team event.  Technically, both corn and soybeans look strong, but I think I would be initiating my first round of sales for both, if I intended to grow those crops in 2016, maybe in the 10-15% range.  We have also seen the stock markets and the crude oil market rebound in recent days and that looks to continue today.  Crude oil is up nearly $2.00 and has traded above $32.00 briefly.  After making a marginal new low in the $26.00 range as of our last update, we have seen prices rise by almost 20%. Likewise, the Dow Jones and S&P are improving as well.  The Dow Jones is up more than 200 today, and more than 1000 points in the last 7 trading sessions.  In fact, the Dow is poised to close at the highest level since January 6th.
Inside the Cotton Market
The bloodbath in the March contract today, leaned hard on the May and December contracts as well and once again, cotton futures seem to be in the Danger Zone technically.  Since our last update, we have seen another very nice export sales report (over 300,000 bales) as well as the explanation behind the 600 point drop that we had seen from the beginning of 2016 to early February, specifically during the week of February 3rd through the 9th; that being speculators selling a massive amount of futures contracts.  During that week, specs sold the equivilent of almost 3 million bales in net futures contracts and prices moved from .6285 to .5829.  After the brief respite last week, we find ourselves right back where we were, albeit under improved broader economic barometers.  One would think, that our merchant community will once again be able to sell bales into the export channels at these prices, which should ultimately lead May and July higher once the March delivery period is resolved.  Technically, however, the March remains the lead contract on a continuing chart and settled only 69 points above the old "line in the sand" .5705 from January 2015. The next couple of days should be very interesting in that regard.  We did see certificated stocks rise by more than 100% in the last week or so, so there is obviously someone more than ready to unload some bales of cotton via the delivery process it would seem. While we have a handful of bales left to sell here for growers, we will obviously be moving our focus toward the December and March contracts as we look toward 2016.  And at .5892 in December, there is really nothing much to do.  For now, we will see how this delivery process plays out in March, whether the broader markets continue their improvement, and wait for the eventual Chinese plan of attack for a massive amount of largely unwanted cotton.  If the first two items maintain some sense of stability, we should see the cotton market have a chance to move higher until we get specifics of the Chinese plan.  However, if the other markets roll over and we can't hold the .5705 area on the chart, it might get a tad messier, even before we know what the Chinese plan to do. So on this boring Monday, I'm gonna just play both sides for a change! But buying May at .5850 down to .5800 and risking a couple of closes below .5700 still seems like a decent play for those looking for one.