Ag Market Update - July 30, 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         .6407              .6350               .6355              - .0034           - .0087

Dec 16 Cotton         .6382              .6355               .6345              - .0027           - .0233

Dec 17 Cotton                                                        .6475              - .0010

Sep 15 Corn            3.7450            3.6575            3.7450             + .0675          - .4825

Sep 16 Corn            3.9700            3.8825            3.9700             + .0575          - .3100

Nov 15 Soy              9.5700            9.4275            9.5150             + .0825          - .5400

Nov 16 Soy              9.1450            9.0750            9.1175             + .0375          - .8025

July 16 Wheat          5.2600            5.1675            5.1875             - .0250           - .7825

Today's Market Report
To use a somewhat similar analogy for today, the cotton market continues to die a death by "a thousand paper cuts" while the grain markets for the time being was able to put a tourniquet on a more severe flesh wound.  December cotton was about as boring as one can imagine today, trading a pitiful 57 point range on less than 14,000 contracts of turnover.  That said it should be noted that the .6355 closing level was the lowest close in December cotton since March 17th. The grain markets, which have been beaten to a pulp in before and after our recent absence closed higher on the day, although the trend is now decidedly down. Corn futures were 4-7 cents higher after making a consecutive lower low for the 10th straight day early in the session.  Soybeans were higher by 3-10 cents in tandem with corn futures.  The only loser in larger grain contracts today was once again the wheat market, which dropped 1-2 cents on the day. Impressive grain export data along with obvious short covering were pretty obvious reasons for the gains in corn and beans.  Unfortunately the export data that continues to be most impressive in is in the area of old crop sales as new crop sales for cotton, corn, soybeans, whatever continues to be lethargic at best, and downright worrisome at worst.  Technically, corn prices, despite today's move higher, are clearly on the defensive with a huge gap in December around $4.00 that should serve as clear resistance and the recent old lows down around $3.60 clearly in the crosshairs as seasonal tendencies usually take grain prices lower into harvest time.  For soybeans, it looks like a tug of war between support at $9.00 and and overhead ceiling at $10.00 until we know exactly what kind of crop we have.  I think we were correct in using the recent spike rally to get more sales of corn and soybeans on, although I am kicking myself in the rear for not being aggressive with 2016 corn sales at 4.30 to 4.50.  I was right about one thing; I don't know the first farmer that sold the recent high, I certainly didn't!  Outside markets are generally quiet today with stocks barely unchanged, along with crude oil.  We are seeing another pretty good push higher with the US dollar as the Fed announced yesterday that they are continuing to monitor the economy and are likely to raise interest rates later this year.  2nd quarter GDP released today showed a 2.3% growth rate which was certainly welcomed after the terrible 1st quarter data, although it did fall short of the average guessimate of 2.7% by the "experts".
Inside the Cotton Market
We may have been absent in our commentary for a week once again, but that doesn't mean we missed a whole lot as far as cotton trading went.  I can remember when being away from the office was a guarantee for a limit up move; well we could have taken the entire summer off this year with hardly a breath of excitement in the cotton market.  I would generally be a tad more worried about a selloff considering we saw the lowest closing level in nearly five months today but I think that close today was more due to the lack of volume than anything else.  I still don't see anyone out there ready to push prices below the .6300 support at the moment despite the lack of bullish fundamental or technical news.  As for the crop, it generally continues to progress well across the Northern Hemisphere, although I'm certain that some fairly poor to average cotton exists in pockets with all the heat that we have seen.  As I've said seemingly 100 times, we aren't going to know what this market is going to do for the longer haul until we have a better idea of what kind of crop we have.  I tend to be more bearish than most because, also like I've said before, the crop around here looks very good in most places and cases. The Indian monsoons have returned in earnest last week and this, so I will say that one of the last bullets in the bull's gun has nearly officially misfired. In addition, China seems to be getting some relief from the sweltering heat in recent days.  From West Texas to North Carolina, I don't think anyone would turn away a general 2" rain, but there are more areas in good shape than there are critical areas.  Also, just as we left it, the Chinese are having a terrible time trying to unload reserve bales at current prices which simply doesn't bode well for prices going forward.  Also of great concern is the current export situation here in the US.  Every week, the pundits (largely those that have a bullish bias) continue to say our exports are impressive.  However, the truth is that every week, China doesn't buy the first bale of 15-16 cotton from the United States.  At the end of the day, I can find 10 cotton people from analysts to farmers to merchants to mill people with different ideas of where cotton prices are headed and get 10 different answers, very possibly 5 bullish and 5 bearish answers.  If you read this report, it's pretty obvious that I lean toward the bearish side, but the fact that the market continues to trade from 6300 to 6700 cents tells us that nobody with a "fist-pounding" opinion is currently right.   As for current market recommendations, I say "Do Nothing" unless you are worried about prices continuing to move lower.  If that is the case, buying a 60 cent December Put for 100 points will probably make you sleep a little better at night.  Being currently 350 points out of the money, I would probably buy more puts that I had cotton, but that is a personal preference and honestly, due to the fact that I'm a tad on the bearish side as previously mentioned.  That said, the LDP on the downside is essentially a free Put option as the market moves lower.  In addition, to that said, the probability that you could buy that Dec 60 put cheaper as the market floats back higher is pretty high as well.  Those that have made the most in this cotton market thus far this year are the ones that have SOLD options, collecting time premium as the market essentially pulled a Rip Van Winkle for the first seven months of the year.  Those of you that sold cotton at .6700 and subsequently sold the 68 call for 300 points are closing in on .7000 cotton as was our plan.  In fact, if we continue to stall in this .6300 to .6400 range, we will probably buy those back and add 200 points to our .6700 price and move on down the road.   We continue to favor the .6300 to .6700 range and the .6700 part is probably stretching it, at least until we get some sort of direction from the August 12th crop report.