Ag Market Update - March 10, 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     

 

May 15 Cotton            .6236               .6081               .6087               - .0138            - .0020

Dec 15 Cotton            .6392               .6268               .6278               - .0117            - .0164

Dec 16 Cotton                                                          .6277               + .0002           - .0301

Dec 17 Cotton                                                          .6438               + .0002

Sep 15 Corn               4.0600              3.9850             4.0350             - .0050            - .1925

Nov 15 Soy                9.7250              9.6150             9.6525             - .0675            - .4025

July 15 Wheat            5.0075              4.8800            4.9700              + .0275           - 1.0050

 

Cotton LDP - 4.21 cents  

Today's Market Report
Cotton prices continued to slide on Tuesday, getting no help from the monthly USDA Supply/Demand report, with now-spot May cotton losing 138 points to settle at a 40 day low of .6087.  New crop December could fare little better, dropping 117 points to close at .6278.  Today was the ninth consecutive lower close for cotton, with little end to the bloodshed in sight.  For a report day, the grain complex was unbelievably quiet.  Corn prices were all but unchanged, soybeans were marginally lower, and wheat prices were fractionally lower.  Ending stocks for all three grain commodities were well within trade expectations, both domestically and in the world numbers.  As has been a common refrain lately, commodity prices as a group are getting no help from the surging value of the US dollar. The dollar is higher by 1000 points today and at 98.58, par value is well within the dollar bull's reach.  The dollar is now at a 12-year high when compared to the Euro currency.  Crude oil and other energy products are clearly back on the defensive as the dollar's influence along with record domestic stocks are applying pressure.  Crude is down more than $1.50 today at 48.50, while gasoline and heating oil futures are off by more than a nickel.  I'm not sure how gas stations are going to continue to increase their prices every day while the price of their product continues to go down.  I understand there is a lag in that relationship, but it still looks kindly fishy to me.  The stock markets are also taking a punch in the gut today as the Dow closed down 332 points and the S&P off 35, wiping out yearly gains. Losses were once again attributed to the strong dollar and the idea that interest rate increases are on the horizon.
Inside the Cotton Market
 The monthly supply/demand report was pretty much a non-event as the USDA left domestic numbers unchanged on the March report with the crop at 16.1 million bales, exports at 10.7, mill use at 3.7, and ending stocks at a still somewhat tight 4.2 million bales.  Some reporters are using the USDA's action of taking world ending stocks above 110 million bales as the reason for today's big drop, but in actuality, world ending stock numbers haven't really mattered in a couple of years.  I think we continue to see weak short speculators run out of the market and it doesn't appear that the bleeding is over quite yet.  I really believed that the 100-day average at 61.80 would have put up much more of a fight, but we closed solidly below that (by 100 points) number today.  I would now guess that we will have to trade low enough to stimulate more demand of US cotton before we put a tourniquet on this market.  While I did say in my last update that I would probably favor the long side of the market below .6200, when you look at a long term dollar vs cotton chart it's easy to think that idea might have certainly been premature.  Going back to the last time the dollar was this strong in early 2003, you can see that cotton was trading roughly a dime lower than we are today.  One would think that with the situation as tight as it is, especially for high grades, here in the US, we shouldn't see .45-.50 cent cotton, at least in the May or July contract and risk the US selling out of those 4.2 million bales of stocks, but it does give us cause for concern.   Luckily, our customers have been sold out of 99.5% of their cotton for weeks now so this decline shouldn't concern them.  However, if the markets do continue to decline, this would affect the December and March contracts as well, and we might be kicking ourselves for not contracting some bales when we were above .6500 a couple of weeks ago.   We also still have the increasing number of Indian bales that, we assume, must be sold at some point in the weeks and months to come.  I hate to get bearish again where I assumed we would start to see buying, but at the moment my list of bearish bullet points continue to outweigh my bullish list.  Hopefully, we will see a pickup in export inquiry in the .6000 area and we can start to regain some of the lost momentum that we had.  However, I think you can look at the last couple of weeks and where the market has moved and clearly see that we have a definite ceiling above our head in cotton.