Ag Market Update - May 6, 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           .6668              .6557              .6586             - .0089           + .0386

Dec 15 Cotton          .6626              .6537               .6577             - .0072           + .0135

Dec 16 Cotton                                                         .6585             - .0053           + .0007

Dec 17 Cotton                                                         .6744             - .0053

Sept 15 Corn            3.750              3.6900            3.7200            + .0300         - .5075

Nov 15 Soy              9.6175            9.5100            9.5600            + .0150         - .4950

July 15 Wheat          4.8225            4.6750            4.7925            + .1275         - 1.1825

Today's Market Report
Falling down on the job again as far as updates go, but cotton prices continue to trade the well established range we've seen for months now, albeit with a slight extension to the upside late last week.  Prices slumped today, even as the dollar was lower and most other commodities higher.  July cotton lost 89 points, closing at .6586 while new crop December dropped 72 points and settled at .6577.  Grain prices were generally higher on the day with beaten and battered wheat leading the way, up 11-4 cents on less than favorable yield ideas on a wheat tour of Kansas, technical buying and the overall general tone of the dollar.  Corn gained 2-5 cents, while soybeans were mixed on either side of a penny.  While I still believe that prices will ultimately move lower with the good start to planting season and the El Nino weather patterns that generally produce good growing seasons, it is hard for me to get much more beared up on wheat and corn at these low value levels.  I still think soybeans have plenty of room to the downside, but they have been pretty much been proving me wrong for years now.  Most of these commodities will ultimately be influenced by the US dollar index and it has been on a roller coaster of epic proportions here lately.  The dollar is currently down roughly 1000 points today, and has been down as much as 1200.  It might be argued that the dollar move lower is being led by the recent strength in crude oil prices.  It's a classic case of the "chicken or the egg" and I'm not smart enough to know which one is driving which.  Needless to say, if crude oil keeps rising at a pretty good clip, the rest of the commodity sector will probably follow it.  Crude is currently up only 30 cents per barrel, but was up more than $2.00 at one point today, hitting 62.58, the highest level since early December 2014.  Stock markets are down moderately today, falling to one-month lows, after negative jobs and productivity reports added to the worry that the domestic economy recovery isn't quite as robust as we once thought.
Inside the Cotton Market
While the cotton market, in our stead, moved higher than we generally thought it might in July, moving to .6813, it didn't take a whole lot of time for us to move right back into the same old tired range that we have endured for the last four months.  A generally better-than-expected export report last week renewed the speculator's appetite for cotton, but once the buying ran out of steam, the market moved some 200 points lower on Friday before rallying some into the close.  Monday and Tuesday were pretty much textbook sideways, consolidation days before the market resumed its downward momentum today.  Just as we seemingly do every year, when prices pushed through .6800, we started to hear of a potential July squeeze and the market was heading into the .70's.  Again, I'm not saying it won't happen, but I'm going to have to see a whole lot more evidence than speculative buying before I believe it.  With open interest getting a little too steep and certificated stock continuing to grow, I have no reason to believe that July won't be just as uneventful as March and May, and will most likely expire around the .6500 handle like its predecessors did.  As for December, we did price a pretty good amount of cotton for growers on the new recent high around .6650 to .6700 and while the specs continue to buy December, we think this is a prudent move.  If you have watched the news recently, you probably caught the fact that the chief growing areas of Western Texas have been receiving more rain in a 24-period that they sometimes do in 6 months.  I have mentioned the better than average subsoil moisture out there for weeks now and this rain event this week with only improve that.  The guys in West Texas have the potential to make the best crop of cotton out there in probably 5-7 years.  With the El Nino pattern starting to take hold, this pattern of timely rains are expected to continue.  In the Southeast, after rounds of rain, we are now enjoying more than a week with no moisture which is allowing growers to plant at a very good clip.  Between these two situations, I just can't see the value in being long December or March at the current level, much less above .6700.  We continue to take the idea that selling the December along with a narrowly out of the money call that will net close to .7000 is the best marketing strategy out there.  Every grower and their neighbor is seemingly waiting for a 70 cent December market to price cotton.  It seems for some reason that now 70 cents is much like 90 cents was a year ago in the mind of the grower.  Honestly, in my opinion, if you see December move into the low 70s, the market probably isn't going to stop there and retreat because something greater is likely in play.  History shows cotton doesn't spend much time trading with a 7 in front; it's either below and dealing with Loan and LDP issues, or it flies through the 70s on some sort of supply/demand issue.  I'm not saying the latter won't happen this year, but right here on May 6th, with the current weather situation for the US growing region, I simply can't come up with a scenario that would argue for that possibility.  If today's market is 6600 and you give me a twenty cent range over the next eight months, I'd have to say the odds of trading 5600 outweigh the chances of trading 7600 by a wide margin. I'm sure if I keep preaching these ideas, most growers would prefer I not write a letter at all !!