Ag Market Update - May 27, 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     

 

 July 15 Cotton         .6389              .6303              .6305               - .0026          + .0105

Dec 15 Cotton         .6460              .6395              .6403               - .0005           - .0039

Dec 16 Cotton         .6390              .6390              .6390               - .0029           - .0188

Dec 17 Cotton                                                       .6534               - .0029

Sep 15 Corn            3.6325            3.5500           3.5550             - .0650            - .6725

Nov 15 Soy             9.1150             9.0200          9.0675              + .0200          - .9875

July 15 Wheat         4.9625            4.8200           4.8850              - .0500           - 1.0900

Today's Market Report
No much has changed this year, much less in the last week since we updated this report.  We continue to see widespread flooding in parts of Texas and Oklahoma, while the Southeast continues to dry out immensely after a wet winter and spring.  Today, the agricultural markets were mostly lower, just like they have been for most of this calendar year.  The grains have been hit the hardest, but cotton has been no standout in its own right.  On the second day of this Memorial Day-shortened work week, cotton futures sank once again, although losses were benign to say the least.  July, a contract I am so ready to quit mentioning, fell 26 points to settle at .6305, the lowest settlement since April 22nd.  December futures look just as bad technically and finished lower once again today, dropping a mere 5 points, but closing at .6403.  In the grain pit, soybeans were able to scratch out a small gain as November attempts to keep a "9" in front of a market that has gotten beaten up pretty good in the week we have been out of pocket.  Corn and wheat were lower once again today with corn making new lows for the recent move.  While the crop progress and condition report weren't quite as bearish as some forecasters thought yesterday, it still appears that the market is not the least bit concerned about a corn crop in this country.  I will once again warn that speculators are heavily short corn, soybeans, and wheat, so that the least little problem will likely cause a bigger spike higher than the problem really deserves.  One or two of these short-covering rallies should be looked at as selling opportunities for growers because it certainly appears that we are going to have plenty of corn, soybeans, and wheat at the end of this marketing year, even if the crop is in its infancy.  The US dollar continues to have a negative impact on commodities, as it has regained a healthy march higher.  The threat of Greece being unable to pay its obligations to the IMF next month for what I think is the 234th time in the last couple of years is given as reason for the strength in the greenback, although I would bet you a dollar to a donut, the EU, Greece, and the IMF come up with some magic bullet to stave off the demise of Greece early next month like they have 233 times before.  It does appear that crude oil has put in a pretty nice top in the 62-63 range as we mentioned last week, as shale producers indicate that they would really get charged up to produce oil at those prices, even if their is a current glut of oil on the market.  There aren't many silver linings out there for row crop farmers in the US, but this could be construed as a tiny silver lining, I would guess.
Inside the Cotton Market
While we continue to trade the well defined range that we have for the last 4-5 months, it would appear that the downside edge of that channel is somewhat at risk with the current liquidation of speculative longs.  As I mentioned earlier, today's settlement is the lowest in five weeks.  After the weak close on April 22nd, the market rocketed some 250 points higher the next day and by 5-6 sessions later, we were knocking on the door of .6800.  And some 15-16 sessions later, here we are, right back at .6300.  The cotton planting progess report yesterday would have seemed to give the market a little bit of incentive to move higher today, but that was ultimately, not the case.  While Texas is far behind normal in its planting pace, it is understood that planters are moving at a feverish pace in the West Texas Panhandle and after a decent chance of rain today and tomorrow, the long range forecast looks ideal for getting a crop into the ground that stands the best chance of making bumper yields in at least 7 years.  There are pockets of extreme wetness in Texas, extreme dryness in Georgia, possible monsoon concerns associated with the El Nino in India, and the always present rumors of crop problems in China; however, it doesn't take a genius to look at December 2015 cotton trading at .6400 to know that the market isn't very concerned about a shortage anywhere at the moment.  My guess, once again, is the US crop gets in place, albeit at a slightly later pace than normal and while acres may indeed ultimately be some short of the current estimate, we will make enough cotton to maintain or increase the current US carryout that has prices mired in the 60s or "no-man's land" as I like to call it.   I would say that with the Texas crop having outstanding potential but getting planted somewhat late, the always present idea of an early frost COULD have bullish implications on the market down the line.  But trying to put that idea out there before the calendar even turns to June is the epitome of "searching for something."  Here in Georgia, there are pockets of dryness and plenty of dry land acreage with seeds either laying in dry dirt or waiting on moisture to get planted, chances for rain do look pretty good early next week.  Some areas got a good rain yesterday that will get their crops off to a decent start.   We still hear of nightmarishly high peanut acreage here in Georgia, but I am still not convinced that cotton acres will be off more than 10-13% when its all said and done.  As I have said in the this space for the last two months, I still favor the downside for cotton prices going forward, but until we have a better handle of acreage and the crop condition, we will probably continue to trade this tired range, which, in the old days was a cotton merchant's dream.  If we could build some significant carry in the December/March those guys should have a wonderfully dull but profitable summer.  The next big event will be the June 30th acreage number and the subsequent July 4th weather forecast.  Until then, watching paint dry will probably be more interesting than reading this update.