Ag Market Update - June 26, 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         .6763             .6538               .6751              + .0213         + .0309

Dec 16 Cotton          .6590             .6590               .6617              + .0099         + .0039

Dec 17 Cotton                                                        .6680              + .0097

Sep 15 Corn            3.9700            3.8200             3.9250            + .0975        - .3025

Nov 15 Soy             10.0200          9.7375             9.8600            + .0825        - .1950

July 15 Wheat         5.6625            5.3025             5.6225            + .3025        - .3525

Today's Market Report
Wasn't going to produce a market report today, but we have seen major shifts to the upside in all of agricultural commodities as fund buying across the spectrum is as heavy as we have seen it in months, so I figured I would at least pen a haphazard one.  Cotton prices have made fresh 9-month highs seemingly out of the blue with almost 40,000 contracts trading in December alone.  December cotton settled at .6751, up 213 points, the highest level since last September.  The grains once again got the ball rolling this morning and are surging as well.  Technically speaking these markets look tremendously overbought, but the speculators are simply throwing caution to the wind today.  Wheat is the strongest of the group, gaining more than 30 cents as early yields are coming in low in the winter wheat patch along with high discounts for damage.  Just like that, we are approaching $6.00 wheat for next season as fears of small plantings emerge.  Corn and soybeans are continuing their march higher as hedge selling by farmers is being outweighed by tremendous fund buying.  With more wet weather predicted for much of the eastern corn belt through early next week, the catchphrase is turning from "Rain makes Grain" to "Rain makes Pain (for speculative shorts)".  Corn closed just above the 200-day moving average so all major moving averages are now in the rear view for corn, just like it was for soybeans a few days ago.  The guys that wrote the $3.75 calls in corn and $10.00 soybean calls are mostly likely having a hard time keeping their lunch down as those options expire in the money today, whereas they were worth almost nothing a short two weeks ago.  It has really been an amazing rally, but if you recall, we mentioned that a short covering rally could be very strong, considering just how short these guys were in the grains.  This is providing a very good opportunity for growers to lock in some decent prices for grains that we thought were likely unattainable not too long ago.  While I still am of the opinion that we aren't going to run out of anything anytime soon, I think it would be prudent to let these markets run just a tad higher ahead of the big reports due out on Tuesday at noon.  However, if you are growing corn, soybeans, or cotton, I think selling at least a portion ahead of the numbers is a very wise decision and a part of a successful marketing plan. 

After the close note:  Soybeans sold off pretty heavily into the close so how they open and trade on Sunday night/Monday morning should be very interesting.  These markets are all technically overbought at least in the short term, none more so that soybeans. 
Inside the Cotton Market
How many times have I written "Never short a dull market" in this space over the years?  Plenty.  How many times have I heeded that advice? Seemingly never. We mentioned yesterday that you could almost feel the undercurrent of potential strong buying yesterday as the market was seemingly asleep, like it had been for the last couple of weeks.  Well, that feeling turned into a full on bull rush today, as outright speculators, fund managers, and plenty of others bought December futures with both hands.  More than 40,000 contracts changed hands in December alone and the jump in open interest Monday should be interesting to say the least.  Fundamentally, there is nothing and I mean nothing out there to fuel this rally other than the expectation of a lower US plantings number on Tuesday.  Of course, the trade has expected and traded accordingly on that news for probably a month now.  But as the old saying goes "The speculator has more money than the trade does cotton" and today was a stark reminder of that.  I would expect more money to be thrown at the long side of cotton, at least for the next day and a half, until this report is issued on Tuesday.  I smell a textbook "Buy the Rumor, Sell the Fact" coming on Tuesday, but if I am wrong, we should get a great opportunity to add to our hedge positions between .6700 and .7000.   Weather wise, it looks like a very good forecast for cotton growing conditions in both the US and in India.  West Texas looks warm and dry, while the Delta and Southeast states should get a wanted round of showers this weekend.  The monsoons have come in almost two weeks early and reportedly in full force as plantings in India are not going to be as short as once reported.  Again, fundamentally there is not much accompanying this technical rally.  What little buying did exist at .63 - .64, isn't there at .66-.67 I don't believe.  Use the weekend to think about a good marketing plan now that we finally have some opportunities.  With the huge increase in volatility, the possibility exists for those to achieve .7000 or better if you are willing to assume a little bit of risk in selling some options.  We will be reaching out to those of you that are not marketing your cotton with a cooperative early next week to discuss pricing some cotton at this level.  Have a good weekend !