Ag Market Update - March 4, 2016

 

by Ron Lee

 

Highway 118 West, PO Box 171

Bronwood, GA 39826

Work:229.995.2616

Mobile:229.881.3903

ronlee@mccleskeycotton.com

www.mccleskeycotton.com

Agricultural Settlements

Commodity                 High                 Low                  Close               Change            YTD     

 

May 16 Cotton           .5664              .5581             .5642              + .0049          - .0769

Dec 16 Cotton           .5614              .5550             .5601              + .0036          - .0871

Dec 17 Cotton           .5986              .5970             .6005              + .0034          - .0440

Sep 16 Corn             3.6775             3.6475          3.6725             + .0100          - .0800

Nov 16 Soy              8.7975             8.7150           8.7800             + .0300          - .0475

July 16 Wheat          4.6750             4.5525           4.6450             + .0825          - .1875

 

Cotton LDP Payment - 7.34 cents/lb (8.71 beginning tomorrow)

Today's Market Report
With the weather starting to get better and people getting "Spring Fever", it would appear that those that trade the markets are feeling the same way as market activity today was pretty apathetic across the board. That or the traders are more interested in watching the Romney/Trump verbal battle on television instead. Either way it was a boring day in the market. Cotton prices finished higher today for the first time this week amid volume that was significantly lower than the first three days of the week.  After the last few days, it would stand to reason that the market would need to take a breather and today would probably qualify as such.  May cotton closed at .5642, up 49 points, while December finished at .5601, higher by 36.  Corn and soybeans were even more listless in trading today, both finishing within a penny or two of unchanged within tight ranges. As the Midwest looks toward planting season, it appears that these two major crops are simply fairly priced.  The bulls are hanging their hat on the chance of a La Nina this summer bringing drought to the Midwest, while the bears still have the fundamentals on their side via large supplies and sluggish demand. The bigger mover today: it was wheat, believe it or not.  Wheat prices, which have had as rough of a go in 2016 as cotton prices, were higher by almost a dime today.  Whether it was simply short covering or the idea that dryness in the Southern Plains is negatively affecting the wheat crop there, it was a good performance today for wheat.  Both the stock markets and crude oil seem to be taking a breather today as well.  The Dow is currently up 25 points, while oil looks to close within a dime or so of unchanged.  Crude oil did trade as high as 35.32 today and as we mentioned Tuesday, 36.00 looks to be pretty significant level of resistance for crude going forward. The US dollar index has sold off considerably, down 60 points, but the outside markets have basically ignored that news so far today. 
Inside the Cotton Market
Cotton prices seemed to have settled into a new range over the last couple of days after the big move on Monday.  Right now, trading either side of .5600 seems to be the most popular place, as terrible as that sounds.  However, on the bright side, we haven't even attempted to revisit that .5453 low from Monday.  It stands to reason that we probably will in the next couple of weeks until we get the specifics of the Chinese policy, but hopefully that will not be the case. Today, exports were ok, and would probably be considered pretty good if they weren't sold at such depressed prices.  One would think the number would be even better next week after the price collapse this week but some mills like to see a rebound in prices before they commit to their purchases. Sales this week were approximately 175,000 bales, while shipments bumped up close to 200,000.  For the year, sales and shipments stand at 6.6 million bales.  Therefore, if my math is right, we need to average about 135,000 bales in sales each week to meet the USDA's 9.5 million bale export estimate for the year.  Talking with people who would know and seeing the market at depressed levels, my belief is that we will ultimately exceed that mark and the previous estimate of 10.0 million will ultimately be correct.  Right now, Indian and West African bales are cheaper and plentiful, but once those run out, the US should be the residual supplier.  Again, low prices will ultimately cure low prices. As far as China goes, everything is still pretty quiet, although Cotlook yesterday laid out three possibilities as seen for the Reserve program, none of which in my mind were overly bearish.  An article did run in the Wall Street Journal today regarding the specifics of conundrum that China faces, that article can be found here http://www.wsj.com/articles/chinas-soft-power-tested-as-sale-of-cotton-stockpile-looms-1456999495 The article gives a pretty bearish slant toward cotton prices going forward because of the surplus, but history tells me that once an article like this is usually printed, the best or the worst of a situation has usually already happened.  Anyone remember the picture of the Chinese farmer hoarding his cotton in his living room in the Wall Street Journal when prices were over $2.00 in 2011 and the world was about to run completely out of cotton?  Prices might have peaked that very day, or at least very soon afterwards.  For all I know, that guy still has that cotton sitting in his house.  Anyway, tomorrow will be a welcomed day for the bulls in the cotton market as it will close out a tumultuous week of trading, one were volatility expanded to its highest level in months. I continue to think the market will trade sideways to lower until we get clarity from China.  The more I watch, the more I believe the reaction will probably be a classic "Sell the Rumor, Buy the Fact" example.  The trade has certainly bought into this decline this week as open interest has move considerably higher.  Should prices languish long enough to discourage acres here in the United States, we could see a classic "V" shaped recovery this summer and into the fall.