Ag Market Update - October 21, 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     

 

Dec 15 Cotton          .6466              .6365               .6423              + .0045          - .0019

Dec 16 Cotton          .6444              .6402               .6410              + .0022          - .0168

Dec 17 Cotton                                                         .6482              + .0016

Dec 15 Corn             3.8100            3.7550             3.8025            + .0350          - .4075

Sep 16 Corn             3.9700            3.9300             3.9625             unch              - .3175

Nov 15 Soy              9.0700            8.9450             9.0550             + .0950          - 1.0000

Nov 16 Soy              9.0825            9.0100             9.0750             + .0450          - .8450

July 16 Wheat          5.1000            5.0400             5.0775             + .0250          - .8925

 

Cotton LDP - 5.30 cents per pound (3.75 estimated next week)

Today's Market Report
Agricultural markets edged higher again on Wednesday with cotton futures hitting a nine-week high at .6466 in the December market before retreating slightly into the close.  December settled at .6423, up 45 points and narrowly settling above the all-important 200-day moving average.  Distant month markets were higher but December led the way as one might imagine.  Volume was very healthy at an estimated 30,000 contracts, with more than 21,000 of those coming in December.  The grains were quiet for most of the day but corn, soybeans, and wheat all closed with single digit gains.  It is impressive that corn and soybean prices are able to stay somewhat firm with harvest weather being so ideal across most of the Midwest.  The corn harvest should move past the 60% this week on the good weather and the market doesn't seem like it really wants to break lower out of the defined range and in fact, put in a technically bullish day yesterday and followed through today.  Soybean prices continue to pivot around the $9.00 mark and closed a nickel higher than that today.  Soybean prices will continue to be supported by a reduction in acreage here in the States, yet capped on the upside on what is feared to be record acreage in Brazil.  Most outside commodities such as gold and crude oil are lower today, with the dollar trading fractionally higher.  Stock markets are also slightly higher today but trading aimlessly within recent ranges. The biggest news today seems to be the news that Joe Biden will not seek the Democratic nomination, almost assuring that Hillary Clinton will be the party's choice to seek the Presidency next Fall.  The Republicans are still trying to sort through a large pool of candidates with Donald Trump still surprisingly leading the pack.  A potential match-up between those two candidates does very little to inspire this author, regardless of the ramifications in the markets that we watch on a daily basis.
Inside the Cotton Market
As we mentioned in the brief update yesterday, the news of the impending storm set to move across the West Texas Plains did move prices toward and through the recent .6416 high as December moved as high as .6466 today.  The .6466 tick represents the highest trade for December cotton since August 25th.  After the high was posted during the lunch hour, the market once again consolidated for the last two hours of trading below those levels.  Rain has started to fall in Arizona and New Mexico and is now moving into West Texas, with some areas already seeing up to an inch of rain.  Forecasts vary but nearly everyone is calling for at least 2-3 inches of rain for most of the cotton producing areas of West Texas where upwards of 3 million acres of cotton are planted.  Some of the cotton has been stripped/picked and machines were running late into the night before the rain idled them.  As much as 85% of the crop is still on the stalk and susceptible to the weather.  However, the storm is forecast to track through fairly quickly with sunny skies forecast to return by the weekend.  I am not a meteorologist nor did I stay at a Holiday Inn Express last night, but I still maintain this weather scare will be nothing more than an opportunity to sell the upper end of a long-term range.  It should be noted that that heavy trade selling today put out the bullish fire pretty quickly as prices scooted to the aforementioned highs.  No active export business of any consequence is being reported with prices at these 8-week highs.  It should not be overlooked that cotton prices are rising and look technically impressive during the heart of harvest, yet I still don't believe we are about to zoom out of this year-long 800 point range.  Crops seem to be getting smaller in India, Pakistan, and possibly China, but here in the United States, I'm not convinced that is the case and it is our ending stocks number here at home that will have the most effect on the December and March #2 contract.  I respect those that say you shouldn't sell this market until it does something wrong, which it has not done yet.  However, I believe that once it turns, it will be too late.  I would have orders in to sell from .6475 up toward .6650 and close your eyes and hold your breath if they all get filled.  While we are 98% focused on the 2015 crop that we are harvesting, there does remain 2% of my brain (which is a very, very small portion of a small brain) that is looking toward the 2016 marketing plan.  While the El-Nino pattern is helping to keep prices relatively firm as storms interrupt harvest this Fall, it should be noted that it will also leave soils in key areas of cotton country in, what should be, very good shape as we look toward planting the 2016 crop.  I also believe that we will see an uptick in cotton acres nationwide next year.  The Southeast, specifically the state of Georgia, has certainly over-planted the peanut crop and farmers are getting frustrated with the fact that the infrastructure simply isn't in place to handle this many peanuts in such a short harvesting window.  And in Texas, if they have the moisture, cotton acres are going to be maintained, perhaps increased, and the chances of making a good crop go way up with good subsoil moisture.  The Mid-South will probably continue to move toward grain crops, which is a shame considering cotton built much of the wealth in that region.  However, when you are making 80-90+ bushel soybeans with limited input costs and cotton costs remain inflated compared to other regions, you can't really blame them.  Combine those factors with the fact that cotton harvesting has been revolutionized by the John Deere rolling picker and that farmers are starting to realize the price they see on the futures board isn't all they need to figure when counting up proceeds, and I see cotton acreage expanding next season.  Therefore, I will continue to examine it, but if we do rally toward the high end of the range on December 2015 and December 2016 rallies by a similar amount, I will probably start to price a portion of that crop before most, believing that odds are we could see a sizeable LDP payment once again next year.  Lackluster cotton demand, worldwide government programs that subsidize cotton production, and the El Nino that is underway lead me to believe that this price range is here to stay for the foreseeable future and that includes 2016.