Ag Market Update - June 2, 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          .6429             .6333               .6360               - .0015           + .0160

Dec 15 Cotton          .6466             .6385               .6406               - .0001          - .0036

Dec 16 Cotton          .6422             .6340               .6424               + .0098         - .0154

Dec 17 Cotton                                                        .6564               + .0098

Sep 15 Corn             3.6575           3.5800            3.6525             + .0700          - .5750

Nov 15 Soy               9.1950          9.0025             9.1700             + .1575         - .8850

July 15 Wheat           5.1325          4.9300             5.1250             + .1875         - .8500

Today's Market Report
The dramatic move in the US Dollar Index once again took center stage today, dropping some 1600 as of this writing and having a tremendous effect on the commodity sector.  As I alluded to last week, it would appear that Greece will be bailed out for the umpteenth time in the last three years, leading to the pressure on the dollar.  The news is once again good for the commodity bulls, especially in the grain sector where the news led to massive short covering for speculators.  Grains had strong gains across the board, with wheat and soybeans leading the way higher.  Wheat still seems to be a pretty good bet from the long side under $5.00, especially considering the extreme wetness in the Southern Wheat Belt.  July wheat jumped nearly 20 cents today, closing at 5.13.  Soybeans were higher by 14-16 cents as well, largely on the dollar weakness.  Soybean sewing was slightly behind the 5-year average on yesterday's report, but I doubt that had a lot to do with today's gain.  In fact, I would urge growers to look at pricing some soybeans should we build on today's gains.  Corn was higher by 6-7 cents as well.  The statistics in yesterday's report for corn were almost dead on expert projections and while there are pockets of problems with the corn crop, namely colder than usual weather, the crop as a whole is off to a good start.  I guess I would say from today's settlements, I would be neutral corn, bearish soybeans, and slightly friendly toward wheat.  Cotton, considering the dollar action, was a dog today.  The market could not hold a rally on two seperate occasions and finished narrowly lower on the day.  July was lower by 15 points and December down one tick on the supposed last day of the Rogers Roll.  Noticably, the December 2016 and 2017 contracts both finished nearly 100 points higher on the day.  Don't ask me to explain that one.  The stock markets have had very little reaction to the collapse in the dollar, while crude oil futures are moderately higher as one would expect. 
Inside the Cotton Market
 I'm going to do something a little different in this space today, which I'm sure is a sigh of relief to most usual readers.  As many of you know, I follow Richard Brock of the Brock Report pretty closely and use his recommendations most of the time when it comes to hedging grain products.  Over the last few years, I am sure glad that I have done this for our farm as we have had very good success in hedging those products at profitable levels and for several years into the future.  Brock also gives advice on other agricultural commodities including cotton, which I also read religiously, but usually with a grain of salt considering that I consider Brock Associates much more in tune with grains than cotton.  That said, the latest edition of the Brock Report (which I think all grain farmers should subscribe to, by the way) focused largely on cotton on its front page.  The article can be seen below, and it argues that cotton prices are possibly putting in a meaningful BOTTOM.

  Please read the article in the attached link and I will give my thoughts on the piece below  Brock Report 5/29/15.  (Click underlined then Brock Report on menu when prompted and you should be redirected to a PDF image)


First off, it might not be totally coincidental that this piece was penned 1-2 days after a major commodity adviser indicated to his clients that a long outright position in cotton futures was warranted.  In fact, the huge spike on Friday (which did not last) just happened to come right after this recommendation was made.  That said, I can't argue with any of the points made in the above article in and of themselves.  And of course, I hope that Brock is right in that the market may have made a meaningful bottom.  And as I've said, if prices were to get to everyone's magical 70 cent number, we would probably go significantly higher as something bigger would be afoot and the fact that cotton rarely trades with a "7" handle for any meaningful time.  That gap near 80 cents seems like science fiction while we trade 6400, but if we closed above 7000, I would probably be setting my sights on that gap.  However, I still contend that this market will be very hard pressed to move through the 7000 level.  That said, much in agreement with Brock, I don't see very much downside risk to this market either at the current time.  My belief lies ultimately in the probability that cotton, in and of itself, is not going to lead markets higher, or be the proverbial rising tide that lifts all boats. We have seen since 2007 that rising tide is generally known to be corn.   We would have never seen $2.00 cotton had we not seen $7.00 corn first. With corn at $3.50 and threatening to go lower with a bumper crop, I just can't see cotton running away to the upside when we still have 115 million bales of surplus in the world. Yes, planting progress is slow, yes, acres will be smaller than initially thought both here at home and overseas, and yes, there are market support systems in place in competing countries such as India and China.  In the end, I still believe that we will make enough cotton in the US to keep a comfortable ending stocks level.  I simply can't see Texas not making a bumper crop with the current moisture situation in place.  As Brock says "Cotton is a market that might not be going anywhere, but at a minimum it's not going down much from where it is"....I tend to agree with the part about it not going anywhere, but that is about where my agreement ends. Still, a very good article to ponder and hope that the silver lining behind the current dark cloud is closer to realization than we currently think that it might be. 

If you can't access the Brock link, let me know via email and I will scan and email you the link individually.  I'm certainly not a expert when it comes to working this Constant Contact system.