Ag Market Update - June 23, 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          .6503              .6393              .6455              - .0025           + .0013

Dec 16 Cotton          .6445              .6445              .6445              - .0011           - .0113

Dec 17 Cotton                                                        .6510              - .0011

Sep 15 Corn             3.7325           3.6500            3.7200            + .0775          - .5075

Nov 15 Soy              9.6800           9.4825            9.6075             + .0150          - .4475

July 15 Wheat          5.2275           5.0175            5.2150             + .2025          - .7600

Today's Market Report
It's been a week since I've updated this report, but as far as the cotton market goes, it's been a week of nothing happening.  In fact, with 2015 nearly half way completed, we are well on our way to a year's worth of "nothing happening".  As you can see above, here we are on June 23rd and the December market is almost within 1/10th of a penny in value.  The market closed slightly lower today at .6455, down 25 points.  Volume was on the lighter side as we anticipate the July contract riding off into the sunset with little to no fanfare.  The focus of our attention for now needs to be in the grain markets for those of us that grow and market corn, soybeans, and wheat.  Are these markets making a significant bottom?  While I'm still somewhat skeptical, a case for this can certainly be made.  After seeing soybean prices rally strongly late last week and yesterday, today corn and wheat led the march higher.  For the day, wheat prices were higher by 18-20 cents, corn by 5-7 cents, and soybeans were mixed from down 2 to up 2 pennies.  However, we have seen November soybeans rally some 70 cents from the new lows that we made some eight days ago.  Much of the rally in grain prices have come as much of the Midwest remains "too wet".   As I mentioned earlier, I remain skeptical as to whether any real crop damage has been done to the corn and soybean crops, but the USDA/NASS crop condition reports of the last two weeks indicate a corn, soybean, and wheat crop that is backing up.  There almost certainly will be a pretty sizeable chunk of soybean acres that ultimately will not get planted, especially in Missouri where the rains have just not let up for the last month almost. It should be noted that both corn and soybeans made contract lows just several sessions ago with absolutely no follow through and had rallied back to resistance levels by the end of last week.  Again, I'm not saying I am buying the idea of a major bull rally in corn and soybeans, but you must respect the technical signals these markets are showing.  I'm am still of the belief that $4.00 corn and $10.00 soybeans should be sold aggressively.  We could very well get that opportunity in the coming days and weeks if the Midwest remains wet and speculative shorts get driven out.  But, I still believe that "rain makes grain" and with a huge amount of old crop corn and soybeans still to be priced as we sit here on June 23rd, don't be thinking a return to $6.00 corn and $12.00 soybeans is anywhere on the horizon because it simply isn't.  We saw another big swing in the value of the dollar index today, this time moving up in value.  These huge swings in the greenback seem to be having a numbing effect on commodities as the commodity spectrum was generally mixed on the day.  As for the ongoing soap opera that is Greece, today seems to be a "gonna work it out" kind of day after a "they will probably go bankrupt" kind of weekend.  Stock markets are generally quiet on this Tuesday.
Inside the Cotton Market
This cotton market remains one that is going nowhere fast.  We are still waiting, approximately ten days after China's stated that she announce a plan to begin to rid herself of Reserve cotton stocks within ten days.  Of course, we are yet to hear of any substantive plan of action yet.  The market last Tuesday traded a 200 point range from .6316 to .6516 and has yet to even remotely threaten either end of that range in the last 5 trading sessions.  While it appeared last week as if there might be an outside shot to some fireworks related to July's delivery period, that thought too seems to be on the way back burner as less than 2,000 contracts should remain after today as certificated stock continues to build.  While we wait eagerly to hear how China plans to release the stock and how it will impact the market, it is my belief that the cotton crop across the US and quite possibly across the Northern Hemisphere is off to a very good start.  As I sit here and type this at 4:15 pm, I am looking out my window at a very beneficial rainfall.  Most all of the cotton growing areas of Georgia have received a good rain either yesterday or today, and the forecast into the weekend looks cooler and wetter.  After getting too much rain for most of May, west Texas is now rapidly accumulating heat units under wanted and needed sunshine.  The Indian monsoons are functioning much as per usual and while I can't say for sure, I would have to think their crop is off to a fast start.  While we wait for the June 30th acreage number, I am certain that it is a given that cotton acres will be down from the March number.  However, it is also a given that abandonment, specifically in Texas, will ultimately fall well short of the 5 or even 10 year average and they probably have the potential to make their highest yielding crop since 2008.  While it is early and we are always 7 days from a drought in Georgia, I believe that we have the potential to make a tremendous crop.  30 day forecasts indicate a wetter than average probability for the Southeast.  Ultimately, I still favor the downside for cotton prices, but unless the Chinese come out with a plan to rid themselves of reserve cotton in a manner that explicitly hurts our export potential for 2015-16, we will probably remain very range bound in cotton for the foreseeable future. Unlike with grains, the US farmer is sold out of old crop cotton or will be in the next couple of days; however, the more potential bales that this good weather makes are the more bales that eventually have to be hedged.  But for now, until we see several closes below .6300 or above .6600, there is very little need to get excited about this market.

With cotton planting finally wrapped up and corn harvest still at least a month or so away, I will be trying to reach each of McCleskey Cotton customers in the next several days to get a good number as far as your cotton acreage goes for this year compared to last year.  While we never want to take you business for granted, these numbers will help us make plans for the fall season with regard to bale wrap, storage needs, and labor/hauling concerns.  If you had rather just respond via email, drop me a line at ronlee@mccleskeycotton.com with dry/irrigated acreage for 2015 compared to those practices in 2014.  For all others, I will try to reach you either in person or by telephone.