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

 

Agricultural Settlements

Commodity                 High                 Low                  Close               Change            YTD     

 

May 16 Cotton          .5730              .5653               .5686             - .0052           - .0725

Dec 16 Cotton          .5723             .5645               .5678              - .0048           - .0794

Dec 17 Cotton          .6054             .6054               .6054              - .0024           - .0391

Sep 16 Corn            3.7350           3.6775             3.7125            + .0075          - .0400

Nov 16 Soy             8.9650           8.8750              8.9600            + .0300          +.1325

July 16 Wheat          4.7200          4.6400              4.7125            + .0225          - .1200

 

Cotton LDP Payment - 8.71 cents/lb (yearly high)

Today's Market Report
Markets continue to trade in an ambivalent manner as opposite forces continue to keep them from establishing a new short-term trading pattern.  Cotton prices, after a much-needed three session winning streak, saw lower closing prices today.  May cotton, lost 52 points and closed at .5686, while new crop December settled similarly at .5678, down 48 ticks. Grain prices continue to trade positively, but below levels of significant resistance.  Corn closed up a penny or so, while soybeans and wheat were up 3-4 cents on the day.  After opening weaker, each of these markets managed to strengthen slightly throughout the day.  A weather system that is scheduled to stall over the "Arklatex" region today through Friday is expected to dump upwards of 6-8 inches of rain over that region which has become a pretty big grain player in recent years.  That system could also negatively effect Missouri, Tennessee, and Kentucky as grain farmers in these states get ready to put corn and soybean seed into the ground.  As far as weather goes, the idea from moving to a strong El Nino pattern to a La Nina is starting to lose steam. Commodity Weather Group issued their summer weather predictions today and while they forecast a warm, dry August in the Upper Midwest, June and July look almost ideal when it comes to grain growing weather with normal temperatures and above average rainfall. They do expect it to be hotter and drier for the Southern states but not excessively so. We are seeing crude oil prices retreat today, down $1.50 or so, but the market has performed well since our update last Thursday.  The $36.00 level we mentioned was broken without much effort and the April contract traded as high as 38.39 this morning before profit taking showed up.  This market looks like it wants to try the psychological $40.00 area even if crude oil inventories are at all-time highs.  Remember, bear markets come to an end on bearish news, just as bullish markets do the same on bullish news.  Stock markets are marginally lower on the day, partly due to negative Chinese data that we will discuss below.
Inside the Cotton Market
While prices tempted us on Friday and early yesterday, the disappointing close late yesterday looks like a damaging blow to the market, technically.  The market gapped slightly lower last night and has spent the entire session in the red on this Tuesday. Prices did manage to move higher off the lows by 40 points or so in the last 15 minutes of trading to put a little bit of "lipstick on the pig". Volume was estimated at 25,000 contracts although it sure seemed quieter than that. Looking at the entire board for a second, a couple of things stand out.  One: today was the last trading day for the expiring March contract.  It will go off the board and into history at .5821 or 135 points above May, leaving a downward gap on daily, weekly, and monthly continuation charts that speculators tend to examine closely.  The other point that comes to mind is that from the May 16 contract to next March, there is only 81 points of carry and the December 16/March 17 is at 89 points by itself.  One would think a market that looks as weak as our's does should have some semblance of carry within in, but we don't; in fact the market is technically inverted. Yesterday's news out of the National Bureau of Statistics in China did little to help matters when they reported that weakening demand will restrict economic growth in 2016 and that international financial market turmoil may destabilize China's domestic financial markets.  Of course, it's everyone's fault but China, according to China.  Today, it was revealed that exports from China were down an astounding 25% in February, year over year, while imports were down 13%. This is the worst trade data to come out of China since the height of the last global financial crisis in 2009. Tomorrow, we will get another round of World Supply/Demand numbers from the USDA.  Minor changes are possible with regards to domestic exports, Indian production, world consumption, and as always, the previous carry-in number. I wouldn't look for this report to be much of a market-mover.  As I have indicated in the last few updates, I just don't see any way for us to move appreciably higher until we know the details of the Chinese auction policy, and it stands to reason that we will get those details sometime within the next 10 days.  It should be noted that open interest continues to build as speculators hold their largest net short position in several years. As bad as things look technically, I'm still not sure how much lower speculators can take this market if open interest continues to expand. While the market looks poised to try and move down toward the .5550 area where the bottom Bollinger band runs and coincides with the lows of last Tuesday and Wednesday, I don't believe that a sharp move back to the .5453 low is in the cards just yet.  On a market below .5600, I believe that July 60 calls for less than 100 points are a pretty good investment. For those with a tad more risk in them, a 57 July call for less than 200 points will provide more bang for your buck should prices rally as we believe they might once the Chinese announcement is in black and white.