Ag Market Update - July 22, 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         .6496               .6394              .6454              + .0030          + .0012

Dec 16 Cotton         .6400               .6395              .6395              - .0017           - .0183

Dec 17 Cotton                                                        .6462              - .0017

Sep 15 Corn            4.0750            3.9975            4.0275             - .0375           - .2000

Sep 16 Corn            4.1825            4.1225            4.1600             - .0300           - .1200

Nov 15 Soy             10.0800           9.9275            9.9725             - .0750          - .0825

Nov 16 Soy              9.5475            9.4100            9.4175             - .0925          - .5025

July 16 Wheat          5.4800            5.3725            5.3875             - .0900          - .6600 

Today's Market Report
 The summertime doldrums are still in full effect with regard to trading agricultural, row crop commodities but with the weather patterns settling down some across the country, the markets have started to take on a negative slant from a pricing point of view.  December cotton managed to make a slightly higher high today at .6454, up 30 points, and for the life of me, I couldn't give you one good reason that we closed higher.  Grains spent virtually the entire session in red numbers and closed moderately lower as net drying conditions evolve across the Midwest.  Corn was down 3-5, soybeans lower by 5-9 (with the exception of the near expiring August contract which was up 5), and wheat down 8-10 by the close of the session.  Along with the improving weather, a renewed strength in the dollar today, up about 30 points, provided a headwind for most all commodities.  Ethanol demand is also slipping giving the recent higher price of corn along with the decreases in gas/heating oil prices. The next cue for prices will come from the August 12th crop report, the first one that will rely on field surveys for supply/demand figures.  However, as we sit here on July 22nd, that date in time seems worlds away. Stock market indexes are lower across the board, with the Dow down 115 at current, with lower than expected results coming in from tech companies like Apple and Microsoft. One company's stock price did hit an all-time high today: Chipolte Restaurant's second quarter profits topped analysts expectations as they successfully increased prices for their menu items.  I generally would not point this out, but nearly every one of Chipolte's menu items is related to the price of corn.  Corn prices are down some $1.00 per bushel over last year's high and more than $3.00 per bushel from the highs of 2012 and 2013 when every restaurant and food producer in America swore they were about to go broke over the high price of corn.  As you've seen 100 times before, it's easy to blame Mr Farmer and raise your prices when agricultural commodities are expensive.  But isn't it funny how those prices never retreat at the retail level when agricultural commodities are relatively cheap?
Inside the Cotton Market
Like I mentioned earlier, I have no logical reason to help explain why December cotton closed higher today.  Competing crops were lower, the dollar was higher, weather across the Northern Hemisphere for growing cotton is virtually perfect aside from a dry pocket here or there, demand is still in the dumps, and we have more cotton in the world than we can use up in a year's time with another crop 8 weeks away from harvest.  Now, I don't mean to be that negative or bearish toward prices because the well tested range of .6300 to .6800 is well defined and not in great jeopardy of being violated in the near term.  I just would assume that we would put in a positive gain day on a day where we got help from outside markets.  I guess I would just say that cotton was simply an overachiever on this "No News Wednesday".  Fundamentally, nothing has changed, as I touched on earlier.  Welcomed hot,dry weather is now in place in West Texas where the challenge is accumulating enough heat units on a late but potentially high yielding crop.  The Delta is set for a round of rain that will be welcomed on that acreage, which is very small in numbers but promising in potential.  Scattered showers and high temperatures remain the norm in the Southeastern states.  Perhaps my bearish slant comes from the fact that I can only lay my eyes on the crop in my immediate area and (knock on wood) as we sit here on July 22nd, this crop in our general 3-4 county area holds more promise, yield wise, than I can recall in my 15 seasons back here at the gin, although some of the crop does look late.  There are rumblings of a possible tropical system forming on either side of the Florida peninsula early next week.  As for the Indian monsoonal rains, they are reported to be heavier than normal thus far this week, which should ease moderate concerns regarding that crop.  As for selling state reserves, the Indians are having far greater success in selling their accumulated 2014 crop than the Chinese are in selling 2011 and 2012 reserves.  We will get our weekly export report tomorrow and I would anticipate it being a "non-event" with continued hand to mouth buying by mills but largely devoid of any big sales numbers. For now, I would assume that we will challenge long term support just north of .6300 and I would also assume that level will hold prices and we should float back toward the magnetic axis price that is .6500.  I would say that for now the .6700 to .6800 level is probably unrealistic with regard to pricing and that if anyone was looking to price some cotton, the .6600 to .6650 is likely the realistic upside at the moment.  I will say that if the .6300 area doesn't not hold as support, it could get a little nasty toward the downside as speculators beat a hasty retreat toward the exit.  While I anticipate that happening in due time, I still thing there are too many uncertainties with the size and scope of the US crop for that to happen just yet.  .6300 to .6650, steady as she goes, in all likelihood.