Ag Market Update - June 10, 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     

 

July 15 Cotton          .6516              .6451               .6489              + .0034         + .0289

Dec 15 Cotton         .6593              .6539               .6579              + .0042          + .0137

Dec 16 Cotton         .6573              .6515               .6543              + .0012         - .0035

Dec 17 Cotton                                                        .6683              + .0012

Sep 15 Corn           3.7375            3.6375             3.6425             - .0825          - .5850

Nov 15 Soy            9.3175            9.1800             9.2175             - .0325          - .8375

July 15 Wheat        5.3750            5.1250             5.1350             - .1875          - .8400

Today's Market Report
While the monthly USDA Supply and Demand numbers released today may have some forthcoming impact for the grains, the agency seemed to take the month off as far as examining the current cotton fundamental numbers.  As a result, cotton prices had probably the most lackluster session that I can remember for a WASDE report day.  July cotton traded a meager 65 point range, settling nearly in the middle of it at .6489, up 34 points.  December, closed slightly better, gaining 42 points to .6579.  December's range was a paltry 54 points.  Despite the boring outright session, we did trade over 52,000 contracts on the day, indicated that we SHOULD see a large reduction in July open interest come tomorrow.  Things were much more interesting in the grain pit today, as the USDA doled out friendly information for soybeans, while giving corn and wheat bulls some disappointing news.  In the end, the negative pull for those two kept soybeans from finishing the day in the green as well.  Wheat prices, which had been on a pretty good tear to the upside lately, failed right at the 200-day average of 5.38, and ended up losing 16-18 cents on the day.  Corn, which has had a strong rally in its own right, lost 7-8 cents today.  Both of these markets took it chin as the USDA unexpectedly raised ending stocks.  Stocks were reduced for soybeans, but as I mentioned earlier, they were unable to rally due to corn and wheat. While some areas of the grain belt is still dealing with weather issues, notably Missouri, Kansas, and Oklahoma, the large portion of the grain growing country is dealing with nearly ideal growing conditions.  The recent rally that we have seen in these markets have largely been short-covering on the behalf of speculators.  In my opinion, if corn and soybeans get back to trading largely fundamentals, I believe rallies will be hard to come by.  In fact, we held our noses and priced an additional amount of corn today at 3.82 basis the December contract. On the larger front, we are seeing the dollar taking it on the chin once again today, while the stock markets are having a big day to the upside as investors seem to think that once again a positive resolution will come out of the latest comedy episode known as the "Greek Debt Situation". 
Inside the Cotton Market
 As I mentioned earlier, today's session, as far as a report day goes was about as boring as I can remember.  However, it should be noted that today's close of .6579 was the highest since the May 15th high of .6682.  The next day the market dropped 164 points and we've been right back in the range every since.  With the huge spread action today, we hope to turn our total attention to the December contract going forward as open interest in July should start to dwindle quickly.  In hindsight, I indicated that I thought we would see the July contract ride off into the sunset at or near .6500 just like its March and May predecessors and that seems like it will indeed be the case. Going forward, I look at December with a negative fundamental bias and a slightly positive technical bias.  It seems like most of the West Texas crop has or will be planted and is off to a great, albeit late, start.  The same goes for most of the balance of the US cotton belt, even if acres do come in lower than previously anticipated.  On the flip side, chart wise, we continue to see higher lows which should attract additional speculative buying in the December contract. For now, a line has been drawn in the sand at or near .6700, and as we said in the last update, a push toward there could have enough energy to make its way through that level.  Longer term, the only real threat on the fundamental horizon that could take prices significantly higher, and when I say significantly, I mean 72-74 cents is a complete washout of the Indian monsoon season.  While the internal agencies in India continue to make chatter of a less than impressive monsoon season (wouldn't it make sense for them to do so, considering they are holding upwards of 8 million bales for sale?), it will likely be 30-45 days before we know if this is anything more than a phenomenon.  In my going on twenty years in this business, pinning hopes to a bull market on the back of a weak Indian monsoon will take you to the poor house significantly more times than not.  So for now, the same words that I have been typing for going on three months remain the same:  sell a portion of your crop when prices approach 6650-6700 and wait and see if the market can move through that "line in the sand" at .6700.  If we can, we may indeed be able to price some cotton closer to the .7000 level than I initially believed.  However, fundamentally, between cotton fundamentals and looking at the price of competing crops, I see very little hope of a sustained rally in cotton prices.  If you hear someone start mentioning cotton prices at 80 to 85 cents this fall, tell them you'll have whatever they are having.