Ag Market Update - January 26, 2016


by Ron Lee


Highway 118 West, PO Box 171

Bronwood, GA 39826




Agricultural Settlements

Commodity                 High                 Low                  Close               Change            YTD     


Mar 16 Cotton          .6147              .6070               .6086             - .0055           - .0242

Dec 16 Cotton          .6183              .6136               .6150             - .0038          - .0322

Dec 17 Cotton          .6300              .6300               .6310             - .0016          - .0135

Sep 16 Corn             3.8550           3.8175             3.8300            - .0100          + .0775

Nov 16 Soy              8.9625           8.8675             8.9450            + .0700          + .1175

July 16 Wheat          4.9575            4.8450            4.8850            - .0700           + .0525


Cotton LDP Payment - 4.99 cents       

Today's Market Report
The cotton market continues to make a mockery of my predictions and is seemingly dying a "death by a thousand paper cuts" as a new 4 month low closing price was registered today amid another round of pretty decent volume, estimated at 28,000 contracts.  March cotton lost 55 points and settled at .6086, the lowest settlement since October 2nd.  December cotton was down 38 points at .6150, a number that is certain to continue to stem what little bullishness we had for cotton acreage going forward.  Grain prices continue to be rather stable, although soybeans were higher and wheat lower on this Wednesday.  Corn continues to be priced fairly apparently as the September contract closed down only a fraction of a penny. There just isn't much news out there for the grain crops at the moment with ample supplies and benign weather in the Southern Hemisphere.  Another place where I have gotten off to a lousy prediction year is in the soybean market.  Coming into the year, I thought soybeans had the most downside potential of the ag commodities, yet here we are almost a month in and we are up on the year.  Not higher by much, but anything with a "+" in front has been a sight for sore eyes the last 18 months.  The big news today has been the Federal Reserve's decision to leave interest rates alone this month, after the slight increase last month.  The news was as expected, given the awful global economic performance during the first three weeks of 2016. The stock markets have poked their lips out at the decision and are down about 1.5% in trading since the news broke a couple hours ago. The Dow Jones is currently trading at 15,944.  Energy futures have been higher for most of the day with crude oil up 50 cents, and heating oil higher by a nickel.  There seems to be a growing sentiment that we might have seen the bottom in energy prices last week with crude just above $26 and heating oil at 85 cents. At some point, strengthening oil prices SHOULD portend higher cotton prices.
Inside the Cotton Market
Just more of the same on a No-News Wednesday for our battered and beaten cotton market. Despite a brief respite late yesterday, this week has been totally controlled by the bears in our market. Chart-wise, a lower low and a lower high, which we saw today is never an encouraging sign. Much of the volume continues to be done via spreads instead of outright positions as speculators move their exposure from March to the May contract.  It is widely thought that the merchandising community is gladly letting this decline come to them as they cover short hedges all the way down.  It is also believed that a good deal of new business is being done at these levels, which should bode well for prices down the road.  However, for now, the car is stuck in reverse and I'm sure that anyone with a vested interest in the market assumes that the psychological 60 cent level will be tested any day now.  The next real line of defense on the charts is the .5945 - .5955 area that we saw back in late September.  After that, you would be looking at the .5750 lows from about this time a year ago.  I have been surprised that the .6150 area didn't hold, but I would be really surprised if we slumped to those levels of a year ago.  On the positive side, the lower we do go now, the better the eventual recovery is likely to be.  We have already mentioned how our competing countries are looking to reduce acreage this season.  Any more factors that further reduce our ending stocks would be beneficial to prices down the road.  Again, some of this weakness could be due to the circumstances surrounding the impending Chinese Reserve Auction, which should be formally announced in the coming weeks.  For now, we remain cautiously optimistic that prices will recover into early February.  Should the energy markets seem some stabilization, this should only help cotton.  As mentioned in previous updates, the world ending stocks number as well as the ending stocks outside of China are now moving in the right direction.  Aside from a shocking decision by the Chinese government, it could be argued that we should have already seen the low in cotton prices. But for now, the bear is in control.  Exports will be delayed until Friday due to Winter Storm Jonas. Not sure who named it Jonas, but Jonas nonetheless.  Therefore, we could see further weakness tomorrow until we possibly get from relief from a good export number to end the week.  We will be watching intently.