Ag Market Update - July 13, 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     

 

 Dec 15 Cotton         .6570              .6510              .6552              unch              + .0110

Dec 16 Cotton          .6561              .6535              .6548              + .0004          - .0030

Dec 17 Cotton                                                        .6617              + .0004

Sep 15 Corn            4.4200            4.3100            4.4100            + .0625          + .1825

Nov 15 Soy             10.3150          10.1150          10.2900          + .0675          + .2350

Sep 15 Wheat         5.7675            5.6650            5.7550            + .0050          - .2900

July 15 Wheat         5.8975            5.8200            5.8725            - .0525           - .0975

Today's Market Report
 First day to provide an update in two weeks and we get an "unchanged" close in December cotton today.  Go figure.  Cotton traders are certainly grasping for any and everything to try and get prices to escape the six-cent window that we have seemingly been trading since early winter to no avail.  Today, cotton prices spent most of the day trading in slightly lower territory before some "buying on the close" send prices some higher and a December settlement of .6552, unchanged from Friday's close as I mentioned earlier.  Cotton for delivery in 2015, 2016, or 2017 are all trading within 69 points of one another, a further sign of the gridlock our market is dealing with.  Cotton prices are some 175 points lower than our last update and we will touch on the reasons for that below.  The grain markets have been much more volatile in our stead, with corn prices breaking out to fresh new highs.  We quote September corn here because that is where our "out of the field" bids lie, but widely traded December corn closed today at 4.5225, up 7 cents, and the highest close since last year's June 30th planting data was released.  Soybeans were also higher today, with November beans closing at 10.29, up 6+ cents, but have been unable thus far to take out the highs that we established a couple of weeks ago.  The biggest loser since our last update has been wheat, which had to endure a largely bearish July WASDE report.  Next July wheat lost a nickel today, and is now some 40 cents off its high from June.  The WASDE report for grains last week was largely forgettable, but the market continues to focus on unwanted rains that have been hammering the Eastern Corn Belt for weeks now. The focus now will be on the Crop Progress and Rating, due out at 4 pm today.  Last week, the grain markets dropped, but then recovered, after the corn and soybean crops were upgraded.  Given the recent move higher, traders are probably once again looking for a downgrade this afternoon.  The corn market really bears watching in the next several sessions.  Technically, there is some headwinds coming in the 4.55-4.65 area for December corn, but a run to $5.00 can't be ruled out.  I can't make myself believe that this is a long term rally, but if so, we should see all agricultural commodities follow to some extent.  As I've said before, we are really all just trading corn anyway.  My guess is that we are in the final throes of this rally and the previously mentioned area will hold any further advances.  Of course, I also thought it was prudent to sell some corn at 4.00 and 4.22, and that looks pretty foolish at the moment. Outside of the agricultural markets, the biggest news of our break was the resolution of the Greek debt situation.  It ended, or got kicked down the road, just as we suspected it would.  The Greeks got another round of bailout money after agreeing to austerity measures that they initially said they would not agree to.  My bet is that we are revisiting this same situation in 18-24 months, but for now all the politicians and the stock traders seem to be happy with the resolution agreement.
Inside the Cotton Market
 Last we spoke, cotton was trading at .6719 after making a nominal new high just above .6800 with the idea that we were probably going to trade higher on speculative money pouring into our market.  Well, a couple of things happened along the way to that becoming a reality.  The first being another round of well received rains across the West Texas Plains, where everyone generally got at least an inch of rain, and up to 3-4 inches in places.  While heat units still need be accumulated on a somewhat late crop, the optimism in West Texas surrounding the cotton crop is probably the highest it has been in a decade.  The next punch in the gut for the longs was a WASDE report on Friday that did them no favors.  Despite lower acreage, the USDA kept the crop at 14.5 million bales.  While the agency did raise US exports in both 14/15 and 15/16, we saw world ending stocks jump by some 2 million bales from 106 to 108 million bales!  We continue to do absolutely nothing to reduce world ending stocks even if half of those stocks are deteriorating in Chinese warehouses.  The Chinese did attempt to sell some of those reserves last week with marginal success.  It doesn't take a rocket scientist to know that the only way they are going to rid themselves of those stocks is to drastically cut the offering prices of those bales.  I don't know what is out there to eventually move prices out of the 62-68 cent range that we've basically been trading for all of 2015.  It is my belief that the crop is a good one, but one that still needs a lot to go right over the next six weeks.  For instance, here in Georgia, most of the dryland cotton looks as good as I can remember, but these 100 degree days are making the plant stress quite a bit.  I don't know of anyone in Georgia that would turn away a general 2 inch rain at the moment and only widely scattered showers are in the forecast this week.  After starting out strong, the monsoons in India have weakened some according to published reports so that bears watching over the next several weeks.  I still stick to my beliefs that when we do escape from this range, there is a 70/30 chance that it is to the downside.  As I mentioned earlier, we also need to watch how corn prices continue to trade as corn is a tide that can and will lift all agricultural boats.  For now, the market doesn't seem to want to break below .6500 as simply too many questions keep a trade, that I believe to be pretty bearish, from pressuring weak speculative longs from their positions.  Eventually lower, but for now, I believe cotton is worth what is was on January 1st....roughly 65 cents. 

Update :  The just released Crop Condition report is roughly unchanged from a week ago with respect to cotton, corn, and soybeans.  I doubt the bulls will find much to chew on here, but we shall see come later on this evening when trading resumes.