Ag Market Update - November 17, 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     

 

Mar 16 Cotton          .6337              .6255              .6267              + .0006          - .0278

Dec 16 Cotton          .6425              .6375              .6377              + .0016          - .0201

Dec 17 Cotton                                                        .6354              + .0041

Dec 15 Corn             3.6250            3.5825           3.6200             + .0200          - .5900

Sep 16 Corn             3.8400            3.8000           3.8275             + .0100          - .4525

Jan 16 Soy               8.6500            8.5775           8.6400             + .0450          - 1.4575

Nov 16 Soy              8.8275            8.7825           8.8200              + .0250         - 1.1000

July 16 Wheat          4.9975            4.9125           4.9325             - .0725           - 1.0375


 

Cotton LDP Payment - 5.41 cents    (estimated 5.25 cents next week)    

Today's Market Report
Commodity and equity markets have taken a back seat in the general news cycle and interest since last Friday's terror attack in Paris, France where more than 100 people were killed and hundreds others injured at the hand of a now very real, evil global threat called Isis.  Since then, countries around the world have rallied around the French while trying to come up with the correct method to defend themselves going forward.  Markets have been pretty two-sided since this tragedy last Friday.  The market that we try and watch the closest, the New York cotton contract, has been showing signs of life during the last two trading sessions, only to close disappointingly.  The March contract settled only 6 points higher today, as heavy spreading between December and March continues to dominate the market.  A very healthy 104 points of carry now exist between the soon-to-be-in-Delivery December contract and the March offer which closed today at .6267.  Grain commodities were mixed today with corn and soybeans closing fractionally higher, while wheat prices continue to give ground, with next July's contract now trading back below the pivotal $5.00 mark.  Weak export demand for corn and wheat in the face of a still very strong US dollar continue to weigh on prices, while uncertain growing conditions in South America have kept soybean prices somewhat afloat, although they too are on the very low end of the 2015 yearly price spectrum.  We are seeing crude oil prices trade back down toward the all-important psychological level of $40.00/barrel, while the aforementioned dollar index is moving back toward Par at 99.70.  I would assume that energy prices can and will go lower, but hedging heating oil below $1.40/gallon on the board seems like a decent place to start to me.  I'm sure if we get a close below the $40.00, analysts will come out of the wood works trying to predict some type of bottom.  The $37.75 low of 2009 is certainly the next target for energy bears.  If terrorist fears continue at the current levels with the average consumer, holiday traveling season will certainly take a hit, therefore, so will energy consumption.  Stocks are narrowly higher as I log this report with the Dow Jones giving back a 100+ point gain from earlier in the day.
Inside the Cotton Market
As we prepare for our weekly round of rain here in Southwest Georgia, scheduled to arrive tomorrow afternoon, the cotton market continues to grind sideways in the same tired range that we've traversed for months.  However, it does appear that the market would like to try the higher end of that range as evidenced by two attempts toward the 100-day moving average, both yesterday and again today.  As much as I have had a bearish slant toward the market for months now, it appears that prices just don't want to move lower with the current uncertainty surrounding our market.  Going back to the middle of October, .6200 has for all intents and purposes held any attempts associated with pushing prices lower.  I continue to come back to the chief tenants of my bearish belief being the enormous pile of cotton that still rests in China, along with putrid demand of cotton.  That pile of cotton is still sitting in China, whether its 35, 45, or 55 million bales depending on who you believe.  The undeniable fact is that pile is getting older and less desirable every day and it wasn't very desirable two years, or even twelve months ago.  The current plan of attack from the Chinese government to rid themselves of the stock simply hasn't worked.  Nobody knows what will ultimately happening with these bales but it simply doesn't look like they will end up being spun in a cotton mill, whether it be in China or anywhere else, anytime soon. Therefore, I am starting to come around to the idea that stocks outside of China is the most important number when looking at the world numbers each month.  And it is true that demand has been poor and doesn't look a whole lot better into the future as cotton-based products, for whatever reason have fallen out of favor with the average consumer.  However, I don't foresee a time when they start making towels and bed sheets out of the same fabric that currently goes into Yoga pants and if we keep making more people, we will eventually need to make more towels and bed sheets. I think there is a chance that mills have been lulled into a false sense of security, in that, prices simply aren't going to go up any time soon.  However, if the market moved out of its comfort zone, even to the upside; there is a chance, I believe that we could see the demand needle move some.  Not to be snide but there is a modicum of truth when it was said "both would be better off if farmers could fix prices for the mills and vice versa."  Are we about to head back to 75 or 80 cents anytime soon?  Highly doubtful, especially when folks like Informa think we will be dealing with about 1.2 million more cotton acres in the US next year and the Indians are chattering about raising the level of their MSP support price.  However, to shake some cotton loose from grower hands, I think the market could see an uptick in prices going forward.  As we've mentioned before, the government is essentially financing a free put option via the LDP if prices try to move lower. Additionally, we typically see the market bottom in the November/December time frame and according to my calendar, today is November 17th.  We will continue to look for opportunities to add together market price plus basis plus LDP to maximize growers' returns for cotton.  On the weather front, we are scheduled to get between 1 and 2 inches of rain here in South Georgia tomorrow around dusk.  We hope that this is the fast moving front that the weather folks think that it is and we can get back into the fields sooner than we have on the multiple previous rain events.  This has certainly been the most trying harvest season we have dealt with since 2009.