Ag Market Update - June 11, 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          .6496              .6349              .6353              - .0136          + .0153

Dec 15 Cotton         .6586               .6435              .6438             - .0141           - .0004

Dec 16 Cotton         .6599               .6386              .6390             - .0153          - .0188

Dec 17 Cotton                                                        .6530             - .0153

Sep 15 Corn            3.6650            3.6125            3.6300            - .0125          - .5975

Nov 15 Soy             9.2450            9.0650            9.0875            - .1300          - .9675

July 15 Wheat         5.1550            5.0250            5.0425            - .0925          - .9275

Today's Market Report
Blame it on what you will, the yo-yo dollar moving higher, the announcement out of China regarding cotton, the near perfect growing weather, technical indicators, whatever it was led most all commodities, but specifically agricultural-related commodities lower on Thursday.  Cotton, just as we were trying to get excited again about the potential of a rally, fell flat on its face today, with both July and December losing close to 150 points on the day.  After settling at a 3-week high just yesterday, December took out seven sessions worth of gains in one fell swoop today.  Grains were led lower by soybeans and wheat, which both suffered double-digit losses, while corn was the shining star today, losing only a penny or so.  There just wasn't much positive fundamental news out there for grains, with the exception of some nagging weather problems for the west-central grain belt, so the markets once again took the path of least resistance. I haven't looked really hard but it must be a "Greece is Saved Day" judging by the dollar being up 300 or so points as of this writing.  As you may discern from my sarcasm, I don't think the ultimate outcome of the Greek debt crisis will matter one bit in the grand scope of the world economy and world currencies, but it sure does give traders a seemingly good reason to swap money every day!  As I mentioned earlier, most markets including the equity markets are down today, but cotton, soybeans, and wheat seem to be the biggest losers.  I haven't mentioned this previously, but I am sure that most of you are aware of the ongoing pursuit of rival Syngenta by the mammoth that is Monsanto.  For now, Syngenta has rejected advances by Monsanto, but what Monsanto usually wants, Monsanto usually gets.  Syngenta has indicated that the $45 billion offer isn't enough but that hasn't stopped Monsanto officials from traveling to London and Zurich to meet with Syngenta stockholders in an attempt to curry favor.  Once again, from my sarcasm, you can probably figure out how I think this thing will wind up.  
Inside the Cotton Market
Just as soon as we try and attempt to put a positive spin on the potential for December cotton in yesterday's letter, that fire was quickly extinguished by the 50 million bale elephant in the room that has been and is known as the Chinese Cotton Reserve Program.  Overnight, the Reserve indicated that they would start to sell reserves within the next month, but as per usual, they didn't indicate HOW they would sell the cotton.  A Reuters article mentioning this can be found at the following link http://www.reuters.com/article/2015/06/11/china-cotton-idUSL3N0YX1ZE20150611.  Just two days ago, the Wall Street Journal printed an article with the title "Global Glut Crops Up in Cotton".  Needless to say to even the most novice reader of this update, these types of mentions AREN'T friendly for cotton prices going forward. Any of these fund managers that I'll say once again, sometimes don't know whether they are trading cotton or canola, can see these fundamental factors in black and white and be spooked out of a long position in the blink of a keystroke.  The Chinese have said before that they intend on selling some their reserves and have had limited success in doing so.  The problem lies in the fact that they indicate that they don't intend to pressure prices by selling their reserves.  And once again, I will say that in the course of 500 years of history, no government entity that I know of has been able to trump the law of supply and demand.  Any cotton man on the globe will tell you that in order for someone to take large amounts of cotton from the Chinese Reserve, the price MUST be DISCOUNTED.  Now we see the Indians taking a cue from the same failed policy that the Chinese have implemented for 4-5 years, and even a dummy like me just sits here and shakes my head.  Then on top of that, I hear about the program we have started here in the United States known as STAX where supposedly only 14-15% of farmers nationwide are participating and I'm trying to figure out how we, the Americans, are the ones that continue to distort the world cotton trade. Again, I just shake my head.  Enough of my soapbox, where do we go from here, market wise you ask?  That's a great question.  We will see July options expire tomorrow and with that, we will leave it to the expert cotton traders to determine where July goes from there, turning our full attention to December and new crop.  But tomorrow will be interesting with those options expiring.  I am on record in believing that July options would expire around 65 cents where the lions' share of the open interest for both puts and calls reside, much like March and May did.  One would think that we would trade higher tomorrow back toward that 65 handle.  However, if we see selling outweighing buying once again tomorrow, those holding bullish options might certainly start to panic some and the reaction could be extreme, given the tight range that we have traded recently.  If we were to take out .6300 basis July, things could get pretty ugly. I said yesterday that I remained cautiously optimistic as far as technicals go, as we have continued to make higher lows for the last few months.  A close below .6300 in July and .6385 in December would certainly send me back to the drawing board as far as our next round of marketing cotton for new crop is concerned. My guess is that we trade higher tomorrow and get right back into the heart of the same old tired range that we have seen for months now, but I would guess that the remaining bulls might not sleep so well tonight, just the same.