Ag Market Update - January 4, 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          .6355               .6251              .6261             - .0067           - .0067

Dec 16 Cotton          .6475               .6409              .6430             - .0042           - .0042

Dec 17 Cotton                                                         .6435             - .0010           - .0010

Sep 16 Corn            3.7550             3.6850            3.6975            - .0550           - .0550

Nov 16 Soy              8.8475             8.7075            8.7400            - .0875           - .0875

July 16 Wheat          4.8600             4.7050            4.7350            - .0975           - .0975

 

Cotton LDP Payment - 3.30 cents/lb through Thursday

Today's Market Report
It has been quite a while since I provided an update for our agricultural commodities as we concentrated on getting this crop ginned and then enjoyed some down time for the Christmas season and then again on for the New Year's holiday.  I will try to be a little more frequent with these updates in 2016 as the information needed to pass along becomes available, but all in all, it was a tremendously boring end to the 2015 trading year for the last half of December and there was actually very little for me to report in this space. Cotton was actually one of the best performing commodities in the complex in 2015, as hard as that might be to believe, squeezing out the tiniest of profits in 2015.  As you know, most everything else that is a tradeable commodity finished 2015 considerably lower in value than where they were on January 1, 2015.  For more reasons that we care to count, we are ready to turn the page to 2016.  Unfortunately, the first day of trading in 2016 was not one to remember fondly today.  Agricultural commodities across the board got off to a negative start for the year, no doubt influenced by the turbulence among global equities.  The Chinese stock market was trounced last night, in fact, the market was down more than 7.5%, which led to temporary halt in trading.  The US stock market took the cue and played defense all day as well, with the Dow Jones currently down 250 points at 17087, but well off intra-day lows at 16860.  Cotton prices were lower on the last trading day of 2015 and continued that path to start the new year.  March cotton was down 67 points at .6261, while new crop December settled at .6430, down 42.  Today's close was the lowest since November for the March contract and lowest since December 7th on a continuous chart.  The grains were equally weak, with corn, soybeans, and wheat all lower to start 2016.  Gloominess about the world economy combined with continued good South American growing weather did allow the grain markets to have much of a fighting chance today.  There was probably an ample amount of New Year farmer selling of both corn and soybeans today as tax planned dictated.  Crude oil was higher for much of the session today as tensions between Saudi Arabia and Iran continue to heat up, but ultimately finished the day fractionally lower at 36.91/barrel. The brightest light today in the commodity sector was noted safe haven, gold, which finished $15 higher.  One would think 2016 would be a better year for commodity prices, but for one day at least, it was just more of the same.
Inside the Cotton Market
So we took basically three weeks off from providing a cotton market report and prices are almost identically the same as we left them.  After a halfhearted effort toward higher prices after the neutral-slightly friendly December crop report toward .6550, the market slumped back into the heart of the trusty range for the balance of the month until strong end of the year selling on December 31st caused the charts to take on a slightly bearish tint, and that was expounded upon to start 2016 today.  At the end of the day, I still don't think the market is in any real danger of extending this move to the downside very much more.  As we have discussed seemingly forever, this market continues to be trapping in a trading range that started sometime in August of 2014 and continues solidly to this day.  While the market made a false breakout in September '14 to a high of .7149 and then threatened without follow-through last January at .5730, the market has basically traded between .5900 and .6700 for almost 17 months.  Do we exit this sideways pattern in the 2016?  If so, in which direction?  As I study the market, I believe the answers to these questions lie within the policy of the Chinese government, as it has for the length of this sideways pattern.  However, the cotton that is amassed in government warehouses continues to get older and less desirable by the day. At some point, this giant elephant in the room will have to be addressed.  I guess that if it not addressed in 2016, there is a good chance that we will be enjoying more of the same this year.  There are ways to make money in a sideways market.  We were successful in selling options last year for growers, which added to their bottom line.  In fact, some of those that allowed us to help them with their marketing, saw prices in the mid 70s once everything was taken into consideration.  This year will be another challenge when it comes to marketing a cotton crop, but I would love to help you formulate a marketing plan if you would like to go that route.  For now, the market may try to press lower in the short term, but a move back to the heart of the range in the 64-65 cent range is probable as we move toward the middle of the month.