Ag Market Update - June 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          .6500              .6337              .6363              - .0103           - .0079

Dec 16 Cotton          .6435              .6380              .6404              - .0055           - .0174

Dec 17 Cotton                                                        .6469              - .0055 

Sep 15 Corn             3.5875            3.5200            3.5275           - .0600           - .7000

Nov 15 Soy              9.0600            8.9575            9.0425             unch             - 1.0125

July 15 Wheat          5.0375            4.8600            4.9525            - .1500          - 1.0225

Today's Market Report
 In what is becoming an unwanted common refrain, agricultural commodities were once again lower and in some cases much lower to start the new work week.  Cotton prices, seemingly still having a hangover from the news out of the China last week, plummeted again today after a brief reprieve on Friday.  December cotton, now all but left to fend for itself as July nears delivery, lost 103 points today and closed at .6363, the lowest level since April 22nd when we saw an identical .6363 settlement.  I'm not a technical chart guru by any means, but it doesn't take one to see that the cotton chart is now in a pretty big mess.  We also saw a new contract low close in December corn today at 3.6350, which should leave the very short funds emboldened to pile on additional contracts in the coming days with very little threat of bullish fundamental news on the horizon.  Wheat prices also took it on the chin today, losing roughly 15 cents per bushel.  I can't tell you how or why, but the soybean market was able to tread water today, even as its competitive crops took this gut punch. November soybeans closed unchanged on the day and rallied nearly a dime per bushel off intraday lows.  For the record, we did see November beans trade a number of contracts with an "8" in the front today.  I don't think this is the last time we will see this happen.  But for today soybeans gets the "Child of the Day" award.  In the bigger picture, most widely watched and traded markets are marginally lower with the exception of a slightly higher dollar.  The daily Greece update is one that fears that default may be on the imminent horizon as talks for a resolution broke down over the weekend.  Odds are better than 2/1 that we will have a rosier outlook come tomorrow as per usual.  The stock markets are lower today on that news coupled with a less than anticipated factory data report.  The Federal Reserve will begin a two-day meeting tomorrow where interest rates are expecting to remain unchanged.  Most are expecting rates to begin to tick up sometime in September.  On the political front, Jeb Bush is expected to make the worst kept secret of the year a reality today when he announces a run for the White House.  Many are predicting another Clinton vs Bush showdown next year which would be a further sign that this country has no clue which direction it wishes to go. 
Inside the Cotton Market
 Despite being slightly higher in overnight trading, it didn't take the market long to accelerate to the downside once the sun came up on the east coast this morning.  With most of the cotton trade's key players ascending on Hilton Head Island for the annual Fiber Buyers Convention, coming up with a bullish story to tell was probably a pretty tough assignment among the convention goers.  More rain falling in West Texas over the weekend after 10-12 days of all out, 24-hour planting certainly adds to the moisture profile out there, where those that have gotten a crop planted are certainly very optimistic about making a BIG crop of cotton this year.  Additional information from widely reputed meteorologists that indicate the Indian monsoons will not be short this year adds to the bearish sentiment with regard to cotton prices as well.  But the biggest news seems to still be the announcement from the Chinese last week that they intend to start reducing the size and scope of their Strategic Reserve with a formal plan and announcement in the next ten days.  While they have succeeded in doing what governments do best in "kicking the can down the road" as most all of this cotton is now at least two years old and getting to the point of degradation, it is starting to be "now or never time" to figure out a plan.  The fact that the Chinese government loses hundreds of millions of dollars for each penny per pound this cotton loses in value is no small afterthought as well.  I have no insight as to how they plan to rid themselves of this cotton; even as they announce it, I'm not sure they have a plan either.  Either way, for now, the market is taking on a bearish tone as it waits with anticipation of the announcement.  Technically, the market looks somewhere between bad and awful.  The series of "higher lows" that bullish technical gurus kept pointing out is now null and void after today's action.  It might not happen tomorrow or the next day, but it would certainly make plenty of sense for December cotton to check out the March lows of .6200 and then possibly the contract low of .6128, set back on January 23rd of this year.  Funds that have been long cotton multiple times only to be burned time and again are going to stop jumping in the brier patch before long.  Additionally, very little hedging of the 2015 crop has been done by farmers.  Here at the gin, I would say that we have forward contracted more cotton on behalf of growers than 99% of the gins in the country and looking at the close today, we still don't have nearly enough sold. At some point, this potential 15-16 million bale US crop has to be hedged/sold. One potential plus for market prices which will certainly not be a plus for those of us that grow cotton in the Southeast is the 10 day forecast for our area.  Alabama, Georgia, and the Carolinas are expected to see record heat along with virtually zero chance of precipitation over the next two weeks as a strong high pressure system builds over the region.  With the MidSouth region being all but out of the cotton business these days, Southeast cotton production is very important in the grand scheme of the US cotton balance sheet.  That said, after today, the picture for cotton prices going forward is murky at best.  I will need to follow my own advice better in the coming weeks and months as "Sell Rallies" has been the battle cry in this space for months now and after today, it makes even more sense.