Ag Market Update - July 15, 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          .6621              .6460               .6487             - .0126          + .0045

Dec 16 Cotton          .6525              .6450               .6468            - .0114           - .0110

Dec 17 Cotton                                                         .6535            - .0114

Sep 15 Corn             4.3175           4.2100             4.3000           + .0175          + .0725

Nov 15 Soy              10.2700         10.0550           10.1675          - .0825           + .1125

July 16 Wheat          5.8575           5.7575              5.8575           + .0300          - .1125

Today's Market Report
While volume wasn't overwhelming today, cotton prices sunk to the lowest closing level since June 24th, essentially wiping out three weeks of the market's attempt to push through the .6800 level to no avail.  December cotton lost 126 points today, falling right back between the 100 and 200 day moving averages at a closing price of .6487.  Nothing specific that I am aware of spooked the market today, but technically the settlement looks rather ominous.  The grain trade had something for most everybody today and it swung back and forth between positive and negative territory every time a Tom, Dick, or Harry gave a different opinion on the upcoming weather.  Corn managed to eek out a 2 cent gain on the day after a nasty reversal yesterday.  However, at one point, corn was down almost another dime before the late day rally.  This market is looking very toppy on the chart and if the consensus two-week forecast holds true, $4.40 to $4.50 is going to look like a great place to have sold your cash corn crop.  Soybean prices took it on the chin some today, though considerably off the day's lows.  November soybeans settled at 10.16, down some 8 cents.  Right now, 10.40 in November soybeans is the proverbial "line in the sand", and without additional weather issues, it looks to be pretty stiff resistance in my novice opinion.  Wheat prices somehow edged out a three-cent gain today after, like its counterparts, being lower earlier.  After dropping some 50 cents from its recent high, July 16 wheat could go in either direction it would seem.  Lots of things to talk about on the macro front today.  As we all know, our fearless leader Obama has struck an accord (along with other countries) with the country of Iran to lift numerous sanctions on the rogue nation in exchange for "Iran's word" that they will disarm their nuclear capabilities.  While everyone except for Obama and the country of Iran seem to think the deal has dangerous implications, it does stand to reason that an already historically oversupplied crude oil market is about to get flooded even deeper. Crude oil prices were off by $1.50 or so today, while gasoline and heating oil futures were off by a nickel per gallon.  After moving some 50 cents per gallon higher, gasoline and heating oil (diesel) are now right back down within a nickel of the late January lows.  It stands to reason that we should see lower fuel prices as the calendar turns to the Fall months.  Also, the dollar was significantly higher again today (possibly having some effect on cotton prices) on the idea that the Federal Reserve Chairman reiterated the probability that a interest rate hike could be coming in the next few months.  I'm sure the Wall Street cats will have their lips poked out about that, but for now, the dollar looks technically poised to make new highs in the coming weeks.  And lastly, the people in Greece are now having buyer's remorse about the idea of having to actually go to work and repay its debts.  Bailouts are supposed to be free, don't you know!  If this situation escalates that the Parliament there rejects the deal the Prime Minister made, we could have a whole other round of shenanigans in that neck of the woods, and that could further propel the dollar index while having a negative effect on commodity prices.  All of that said, the stock markets are currently only fractionally lower in today's trading but remain at historically high levels. 
Inside the Cotton Market
Gone are the days for now when we compared the cotton market to a roller coaster; it now seems more like a merry go round carousel at the fair where the fictitious horse moved slowly up the pole and then slowly back down the pole.  While it seems like the market really had a tough day, and technically it did, the price of December cotton really simply just moved right back down in the heart of the tired but trusted range.  As you can see in the quotes above and I hate to keep repeating this, December cotton closed today within 1/2 of a cent of where it closed last December 31st.  We have been three cents lower on the year and three cents higher on the year, but ultimately we keep returning to the comfort level that is 65 cents.  I remember several years ago, when the market could move 10 cents in a week or two's time, saying I wished the market would return to the days when we wouldn't move 10 cents in a years time.  It appears that I didn't have to wait long to get my wish and now I sure wish we had a little more volatility, but isn't that how life usually goes? I have no doubt that the savviest of the cotton trade has enjoyed this season of sideways trading immensely and has likely made large sums of money doing so.  On the flip side, the less savvy speculators and hedge funds are probably ready to throw their hands up and say "To heck with cotton, I can't get it right!" as they continue to buy at inflated levels with little to no follow through.  I mentioned this in my letter Monday as far as the trade/spec battle goes, and the trade put another run on the board today.  As for the market fundamentals themselves, there really was little in the way of hard news today, as it usually is on Wednesday.  We expect to see a small amount of export business tomorrow, but generally just the hand-to-mouth stuff we have seen in weeks previous with China largely being absent from the market.  As for the Chinese reserve auction, it continues to be met with a casual "roll of the eyes" from Chinese mills as less than 10% of offerings yesterday found a buyer.  Probably the biggest bullish bullet out there at the moment is the lessening of the Indian monsoons which could be starting to stress that young crop.  However, the monsoons are predicted to come in stronger early next week, so like the grains, we will just have to wait and see.  As seemingly forever, I continue to favor the short side of cotton, largely on the potential of the US crop and idea of smaller exports for 2015/16.  However, potential doesn't always come to fruition and the US crop is a long way from being made.  Therefore, from .6450 down toward .6300, I get less bearish knowing what I know today.  But, as long as prices trade from .6300 to .6700, I am simply doing nothing more than reporting on the market, as I have no recommendations to give to growers in this price range.  We will eventually escape this boring range, but looking back at a chart we traded between essentially .50 and .60 cents for almost two years between 2005 and 2007 and it's happened plenty of times before, so this is certainly not without precedence.