Ag Market Update - March 24, 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         .6440              .6361              .6391              - .0014          + .0284

Dec 15 Cotton          .6471              .6431              .6470              + .0015         + . 0028

Dec 16 Cotton          .6450              .6450              .6314              + .0033         - .0264

Dec 17 Cotton                                                        .6475              + .0033

Sept 15 Corn            4.0925            4.0350            4.0925            + .0375         - .1350

Nov 15 Soy              9.6675            9.5750             9.6325            - .0175         - .4225

July 15 Wheat          5.3600            5.2650             5.2800            - .1000         - .6950

 

Cotton LDP Payment - 5.65 cents

Today's Market Report
It was a very dull session in the cotton trade today, especially compared to yesterday when prices extended their recent rally.  Today was a classic "inside day" where prices never eclipsed the high or certainly the low of yesterday.  May cotton closed fractionally lower at .6391, down 14 ticks within a tight 79 point range.  In a bit of counter trend, the December contract closed slightly higher at .6470, up 15 points on the day.  I don't expect this to become the norm going forward, certainly if prices continue to push higher.  Cotton wasn't the only market to take a breather today, as the market everyone has started to look at for direction, the US dollar index, has traded as quietly today as any in recent memory.  Therefore, with the exception of wheat prices, which fell pretty good today, most markets are also on the quiet side today.  Corn prices, which have been on the rise lately with most other commodities, finished the day marginally higher, up 2-3 cents.  We are finally at the point in the calendar year where we start to watch weather with more than just a passing glance.  The next 10-14 days do not look great for early fieldwork in the Midwest and that could lend some additional strength to the corn and soybean markets, although it is WAY TOO early to start pricing in a real weather premium at the moment.  Wheat prices were lower by 9-10 cents after strong recent gains and the forecast for needed rain over the lower US wheat belt this week.  Most market eyes will start to focus on next week's USDA Planting Intentions which should provide market direction, along with the suddenly all-important US dollar, until we get into the heart of planting season.  A market I haven't mentioned lately, but one that has seen a renewed sense of strength in the last several sessions in the cattle market.  This bull market, pun intended, continues to have long and lasting staying power as the market made fresh 10 week highs yesterday.  At some point this market will reverse course and cattle farmers will have wished they hedged these high prices, but that point in time doesn't appear to be imminent as herds are still being rebuilt, and that will obviously take time. 
Inside the Cotton Market
 Despite today's slightly lower close, the cotton market continues to do everything it is supposed to do for the bulls.  After last week's "out of nowhere" 200+ point rally, we have continued to see the market push higher, above every meaningful moving average save the 200 day, and technical indicators such as the Bollinger Bands and MACD are giving pretty good "buy" signals to those that don't know whether they are trading cotton, cocoa, or canola.  I say this because I believe that we have a well defined range for cotton and we are now approaching the upper half of that range where fundamentals will start to favor the bears.  It is NEVER this simple, but at arm's length, this market looks like on that in the May and July contracts, you can buy it all day at 60-61 cents and sell it all day at 65-66 cents.  One might tell you that if the market can close with authority above the 200 day average at .6500, we could see the market move even higher, maybe up toward 68 to 70 cents.  However, I believe that very much above .65 or .66 cents, we would see a) significant sales of the Indian MSP cotton and b) renewed cancellations of US export sales and likely a combination of the two as US export sales are replaced by Indian bales.  Some will say that the lack of certificated stock and the lack of a big speculative position could move this market higher as well, and while that may be somewhat true, any extreme move and likely inversion, would simply move those potentially cancelled US bales toward the board, in my opinion.   The old crop picture looks fairly clear to me, even as I'm sure I will ultimately be wrong, one way or the other.  The new crop picture doesn't hold that much promise I'm afraid, at least for now.  If May and July continue to strengthen, it is likely that December and March will certainly be used by merchants to hedge new crop bales.  I would expect the front of the board to gain on the back, again especially if we see continued strength.  Therefore, as I mentioned last week, for those that want to aggressively start to market their 2015 crop, I think .6550 to .6650 is certainly a good place to start.  As I've said a million times, if I knew what Mother Nature had in store for the US cotton belt for the next six months, I probably wouldn't be here writing this update.  However, I do believe that if we get decent planting weather for the majority of West Texas and South Georgia, we will have to opportunity to make a better than average crop and one that probably won't lead to a sizeable decrease in US ending stocks.  Therefore, if we can price a portion of our crop at .6600 to .6800 and then get a five to ten cent LDP on the back end this Fall, I think I'd sign up for some of that if I didn't have any bales sold already.  For the next few days however and certainly hopefully with another probable impressive export report on Thursday, we will take our cues from the May and July contracts and see if they can indeed revisit the recent highs.  After that, we have the Planting Intentions report next week and we need to continue to watch the dollar as I mentioned earlier.