Ag Market Update - January 14, 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     

 

Mar 15 Cotton            .6005               .5866                .5898               - .0117            - .0129

Dec 15 Cotton            .6389               .6275                .6301               - .0089            - .0133

Dec 16 Cotton                                                               .6433                - .0075           - .0145

Dec 17 Cotton                                                               .6587                - .0075

Sep 15 Corn                4.0575              3.9625            4.0075              - .0475            - .2200

Nov 15 Soy               9.9350                9.7575            9.9125               + .0450           - .1425

July 15 Wheat          5.5850                5.4325            5.4525              - .1225            - .5225

 

Cotton LDP - 4.87 cents     Estimated Next Week - 5.03 cents

Today's Market Report
 It looks like whatever optimism the New Year brought for agricultural commodity prices is certainly starting to wane, or has already waned. With the exception of a late rally in soybeans, it was another putrid day of trading for the commodities we watch the closest.  Cotton prices settled at their lowest level since November 24th with the March contract finishing at .5898, down 117 points.  New crop December still isn't doing any favors for those wanting to plant acres to cotton, closing the session at .6301, down 89 points.  Cotton was no doubt caught up in a macro-economic purge today as the Dow Jones was off more than 350 points at one point and is currently down 240 as of this writing.  The grains were also caught up in the bear traffic, the lone exception being the aforementioned soybean.  Corn prices collapsed yesterday on cue, one day after I said that the bullish Supply/Demand data would support prices, and they followed through with more downside today.  September corn closed at 4.00, down a nickel.  Wheat prices continue in a downward spiral, losing more than a dime across the board and the July contract is already down more than 50 cents per bushel less than 10 trading days into 2015.  Soybeans were lower early, but managed to rally late gaining roughly a nickel and finishing 16 cents off the daily lows.  Export sale reports were mixed today for corn and soybeans, but one of the problems facing corn is the huge buildup in ethanol stocks, produced at higher prices, now that the energy sector is falling so fast.  Ethanol demand does not look rosy going forward in light of the recent price collapse.  We also saw copper, often a bellweather commodity for global growth, hit a 5 1/2 year low today as everything is seemingly following the price of crude oil.  That said, we are seeing a nice rally in crude oil here late in the session. Once down more than $1.00/barrel, spot crude is now up more than $2.50 on the day.  I certainly doubt as if we have seen a low in crude just yet though as I started hedging some energy needs earlier today and I've never picked a high or low in my life.  I'm not near as smart as any of these global economists or stock gurus but I'm still having a hard time understanding how lower gasoline prices are bad for the economy.  It may be bad for the greedy guy holding a pile of Exxon stock, but for the millions and millions that are now filling up their tank for $30 instead of $50 every week, it is very much a good thing for the economy from where I sit.  
Inside the Cotton Market
 It was obviously a "Bad Day at Black Rock" for cotton futures as my old high school football coach used to say after a tough loss.  Cotton prices were quiet most of the night, but couldn't gain footing this morning and the selling accelerated after the stock markets took their beating early in the session.  The late day comeback in stocks and oil, combined with the fact that we were unable to take out the contract low at .5853 might be the only silver lining in what is certainly a dark cloud surrounding cotton futures at the moment.  There isn't much more we can say for cotton that we haven't already printed in this space.  Many were hanging their proverbial hats on a early year rally due to fund rebalancing but thus far that has been a tremendous disappointment.  One thing to remember going forward if we are ever in this predicament again:  If we have a cotton stocks to use ratio of 100% going forward, don't look for "fund rebalancing" to lift prices very high.  That is still the problem with our market: the fact that their is enough cotton in warehouses around the world to run the world's mills for a year without planting a seed.  I'm sure that has happened at some point in history for some traded commodity somewhere, but I'm still looking for that example.  I know there are plenty that question the amount of cotton in Chinese stocks and I will even go along with the idea that the stocks in question are of less than desired quality.  However, unless the Chinese government decides to have a big bonfire with these bales (man, would that stink!!) or catapult them out into the ocean, they still have value at some point.  At the very minimum they can be blended with a higher quality, current crop domestic or import bale.  Whether they use them directly or blend them, it still has a negative effect on US cotton exports.  For now, we will see if the contract low of .5853 will hold this market, or if someone is out there to sell it lower.  As for new crop, a price of .6301 is certainly not getting anyone's attention.  There is a notion out there that prices bottom seasonally between late November and early January and we will have to move prices higher in late winter, early spring to attract acres.  I'm not completely sold on that idea this year, although I hope that turns out to be the case.  I can't count the number of growers I have talked to that said "If cotton prices will just get to 70 cents...."  In my mind, when I think about 109 million bales in the world and a potential grower asking for 70 cents, the cynic and contrarian in me says prices probably won't reach 70 cents in the very near future.  Can we see that price at some point this season?  Sure we can, but I would bet that it would be long after the planting decision is made and likely caused by growing problems somewhere.  Long story short, from everything I can gather and be realistic about, it is going to be a tough 2-3 years for those of us in the farming business.  It would certainly help, now that oil has had such a precipitous fall, if seed manufacturers or fertilizer dealers would cut their costs but I'm not holding my breath on that.  That said, farming and commodity prices have had a series of ebbs and flows for as long as we've been tilling land.  Those that conserve and use smart marketing plans will make it through these tough years and come out better for it when the good times come back around.  And they will.  They always have. 
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