Ag Market Update - October 13, 2015


by Ron Lee


Highway 118 West, PO Box 171

Bronwood, GA 39826




Agricultural Settlements

Commodity                 High                 Low                  Close               Change            YTD     


Dec 15 Cotton          .6416              .6153              .6386              + .0217          - .0056

Dec 16 Cotton          .6391              .6237              .6381              + .0149          - .0197

Dec 17 Cotton          .6500              .6500              .6500              + .0073

Dec 15 Corn             3.8475            3.7900            3.8450            + .0350          - .3650

Sep 16 Corn             4.0375            3.9875            4.0375            + .0350          - .2425

Nov 15 Soy              9.1500            8.8600             9.1400           + .2650           - .9150

Nov 16 Soy              9.1575            8.9500             9.1500           + .2000           - .7700

July 16 Wheat          5.3775            5.2250             5.3600           + .1275           - .6100


Cotton LDP Payment - 6.78 cents through Thursday 

Today's Market Report
Something funny happened on the way to another boring two-sided close in the cotton market today: Someone decided that cotton was well undervalued and decided to buy December contracts with both hands.  December cotton closed 217 points higher on the day at .6386, the highest settlement since August 24th. Bull spreading was a feature as distant month contracts did not gain at the level of December.  Volume was estimated today at a very robust 45,900 contracts.  As we will touch on later, I have no idea what lit a fuse under the market today, although there does seem to be a growing consensus that commodities in general, which have been dogs all year long, are starting to take a turn for the better.  When it comes to cotton, I am still pretty skeptical.  We did see a huge jump in soybean prices today as well, with November soybeans closing at 9.14, up 26 1/2 cents.  I've been watching agricultural commodity markets for 15 years now and I can't remember a single time when "concerns about Brazilian plantings" wasn't used at least one time in any of those years.  As you might imagine, today was one of those days.  A prominent weather report today that focused on super-strong El Nino phenomenons, one that most (but not all) weather guru's agree that we are on the cusp of, indicated that the Mato Grosso region of Brazil, where most of their soybeans are planted will likely be unusually dry this summer.  The one reason that I am more inclined to give more credence to the big soybean rally that has pushed price back above $9.00 for the first time in two months, as opposed to the sudden cotton move, is the somewhat constant export demand that we have seen in beans.  A pretty big cut in soybean acres in last Friday's USDA report could also be cited as a reason for the big jump in soybean prices, although I'm not sure why it took 5 days to digest that number.  Corn prices were higher by 3-4 cents today, but are pretty puny when you compare those gains to the soybean pit, as well as the 12-15 gain we saw in wheat futures.  Outside markets are pretty quiet today, despite more sluggish trade data out of China.  Stock markets have played on both sides of unchanged today, crude has turned lower after being higher on the day, while the dollar has done the opposite.  The agricultural row crops have dominated the trading landscape on this Turnaround Tuesday.
Inside the Cotton Market
I guess I could use my usual go-to phrase when we get one of these out-of-nowhere price explosions, "Never short a dull market", and it would probably be as good of an explanation as any.  The market was trading fractionally higher but well within the recent tight range when the market jumped by 100 points in the 11:00 am hour and then by almost another 100 points around 12:30 pm.  This move took December within two tiny ticks of the all-important 200-day moving average of .6418.  The last hour and a half, the market spent thrashing around about 40 points lower, on extremely heavy volume.  One would have to guess that speculative buying, triggered by buy stops above the market was the impetus for the big move and heavy trade selling near the highs thwarted the move from going any further.  Going back to last Friday's USDA report, myself as well as others in the trade, and many with boots on the ground in Texas continue to be dumbfounded by the USDA's insistence that the crop out there simply isn't out there, if you know what I mean.  But as I've said again and again, these people are the ones that we must trust, at least until we have significant data to disprove them and with a somewhat late start in West Texas, we don't have that data yet; thus, we have to take a wait and see attitude until next month's set of numbers in all likelihood. As for the rest of the report, it made very little sense to me with the agency lowering the crop by 90,000 bales, yet keeping exports at 10.2 million bales and then putting in black and white that "the marketing year price received by farmers is projected to range from 54 to 64 cents with a midpoint of 59 cents that is reduced 3 cents from last month as relative weak global demand for yarn and lower polyester prices are pressuring world cotton prices."  Again, there are plenty of well-respected market analysts that think cotton is under-priced and due to move higher.  I simply can not buy into that argument when both estimated and realized demand figures for cotton move lower each and every month.  I don't believe that you can have a longer term, bull market in cotton arise from reduced demand.  I believe that prices have to go low enough to stimulate demand and desire for cotton-based products.  That said, my previous belief that we should/could/would see cotton prices move into the mid 50s as harvest pressure mounted may have been overstated.  As long as the USDA is carrying our US crop at 13.0 to 13.4 million bales and certainly if that number comes to fruition, the ending stocks or lack thereof, will keep prices from reaching those depths.  I still contend the crop is bigger... (just had to get that in there one more time)... Regardless, I don't see anything in the USDA numbers that would have triggered this move today.  We will probably see the Crop Condition Report take a negative turn here in about 10 minutes as the damage from North Carolina and South Carolina is seen in black and white.  I assume that could have possibly contributed to today's move, although that's a stretch at best.  Technically, the market looks poised to try and move higher, but I believe it will run into heavy trade/farmer selling from here.  The Dec market/LDP gain for the week looks very enticing and what small amount of cotton that has been ginned will likely be freed up by today's move.  I've said it before, I'm sure there are speculative fund managers that have made money trading cotton this year; but for me, this looks like another round of gut punches for the majority of the speculative funds, who are buying these cotton futures with little to no knowledge of how the cash market works or the depressed demand fundamentals for cotton.  If you have cotton, sell it tomorrow or Thursday and take the 678 point LDP on a higher market.  I don't know how it can be more simple than that.  I will take this opportunity as I do every year when an LDP situation exists, to warn growers.  Do not take an LDP because you think it has bottomed and then hold on to your cotton thinking it will go higher.  When the government gives you what is essentially a free "put option", don't try to out-think the market.  Sell your cotton when you take the LDP.  If you are convinced the market is moving higher, buy a call option and be done with that particular lot of cotton.  When you see someone take a 1000 point LDP and then hold onto their cotton, only to sell it for .3500, when they could have sold it for .5700; you don't forget it, even almost 10 years later.