Ag Market Update - March 24, 2016

 

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 16 Cotton           .5831              .5733                .5772                - .0067           - .0639

Dec 16 Cotton            .5755              .5673                .5735                - .0029          - .0737

Dec 17 Cotton            .5955              .5945                .5990               - .0010           - .0455

Sep 16 Corn               3.7925            3.7625              3.7875              + .0100          + .0350

Nov 16 Soy               9.2375             9.1375              9.2275              + .0550          + .4000

July 16 Wheat           4.7200             4.6625              4.7050              - .0025           - .1275

 

Cotton LDP Rate - 7.24 cents

 

Today's Market Report
Markets were mixed on the last day of this shortened trading week and cotton heads into the Easter weekend with more questions than answers, it would appear on the surface. Most markets were lower early in the session, but several markets made impressive moves late in the day and even cotton finished somewhat better.  Both old crop and new crop prices were lower with most of the selling in the front of the market.  May cotton settled at .5772, down 67, while December only lost 29 points and finished up at .5735. Grain prices continue to be very resilient, especially soybeans which continue to surprise me with their strength. Corn finished a penny higher amid a tight range today, while those soybeans were up a nickel.  Wheat prices finished all but unchanged on the day.  Strong export sales of soybean meal were said to influence soybean prices in a positive manner and the technical picture remains very strong.  Soybeans have come within inches of taking out a nine-month high each of the last three sessions and appear poised to do so next week, even if fundamentals don't really support it.  Corn continues to trade in a positive manner, but certainly can't keep up with the pace of soybeans. As you can see in the quotes above, soybeans are now up 40 cents year to date, while corn is only up 3 cents.  Both are performing tremendously, compared to cotton, however and with the USDA Planting Intentions out next Thursday, I find it hard to believe that cotton acreage will ultimately be as high as they might predict, I predict. Outside markets are looking to finish the week on a calm note with negligible gains or losses on either side of the ledger.  While crude oil is barely in the negative for the day, prices did rally $1.50 off the lows.  The Dow is fractionally lower, while the Dollar is higher by a skosh.  The renewed strength of the dollar the last half of this week has certainly weighed on the commodity sector.
Inside the Cotton Market
 After two days of basically doing little to nothing, the market took a decent punch to the gut today as early outside market weakness was compounded by a less than stellar export report.  Sales for the week were only 84,000 bales for 2016-2017 and 52,000 for 2017-18. Shipments were solid if unspectacular at 214,000.  The 84,000 sales figure was the lowest in three months and not encouraging with prices mired in the mid 50s.  As I have been positive toward the market and still am for now, the one other thing holding the market back other than Chinese policy is seemingly stagnant demand.  Cotlook announced today that they see demand picking up in 16-17 by roughly 1.4 million bales over last year and a reduction in world stocks by more than 2.5 million bales.  Unfortunately, when you are dealing with an expanding world population and world stocks of over 100 million bales, a 2.5 million bale reduction in stocks, while heading in the right direction, is not overly impressive. The challenge of how to get more cotton into the demand channel remains a daunting one. The chance of a significant low in energy prices will help, but we need much more. The move toward just getting "some cotton" into a particular favored yarn is a positive step, in my opinion. The "old if you can't beat em, join em" axiom, if you will. Going out to the golf course and seeing 50 kids on the practice range is encouraging for the future of the game; seeing all 50 of them in a 100% polyester Under Armour shirt/shorts combo is not terribly encouraging for the future of cotton consumption and thus cotton prices. But enough negativity.  Technically, the market remains in pretty solid shape.  We managed to put in a positive weekly finish today, and after the reversal pattern of last week, that should be constructive. In addition, when prices were lower by more than 100 points today and solidly on the ropes, the market held pretty much where it should have on the 20-day average and inched higher for the balance of the session as seen below. Obviously, a close below the low of last week at .5716 will reinvigorate the bears.


And there are still plenty of bears out there, mind you.  We will have to see on Monday if the specs covered many or any shorts this week, but at some point you would have to think that they will.  The record short position is finally starting to reach the mainstream media, which in theory, should work in favor of higher prices. Today's price action also could have been replica of last week when we finished the week weakly in the face of a lower LDP and thus loan redemption selling. I still think the market will try and work it's way back into the lower 60s at some point this Spring/Summer, but it appears that it might be more of a slog than a sprint to get there. .5890 remains a big hurdle to jump at the moment, but hopefully we head back in that direction next week.  Hope each of  you and your family have a very Happy Easter !!

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Hedging/Speculative Corner


To hedge insurance gains and to take advantage of a potential higher move in cotton, buy the July 60 call for 152 points. (Hedge) - Filled 3/16/16

Hedge 25% of soybean production by buying the 8.80 put and selling the 9.80 call for a 10 cent debit. (Hedge) - Filled 3/16/16

Hedge 20% of corn production at $3.86/Sept or $3.95/Dec (Hedge) - Open as of 3/16/16

Buy 3 May Cotton at .5765 (Spec) - Filled 3/18/16

Sell 1 June Live Cattle at 1.2895 (Spec) - Open as of 3/21/16




These recommendations are the sole opinion of the author and should be taken as such. Futures and option trading involves a potential substantial risk of loss and is not for all persons.