Ag Market Update - October 22, 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          .6469              .6237              .6252             - .0171           - .0190

Dec 16 Cotton          .6425              .6299              .6310             - .0100           - .0268

Dec 17 Cotton                                                        .6365             - .0117

Dec 15 Corn             3.8350            3.7750           3.7800            - .0275           - .4300

Sep 16 Corn             3.9900            3.9475           3.9475            - .0200           - .3325

Nov 15 Soy              9.1350            8.9750           8.9900            - .0625           - 1.0650

Nov 16 Soy              9.1200            8.9825           8.9900            - .0800           - .9300

July 16 Wheat          5.1325            5.0325           5.0375            - .0400           - .9325

 

Cotton LDP Payment - 3.63 cents per pound

Today's Market Report
A plethora of negative fundamental news today sent agricultural futures lower on this Thursday, once again with cotton leading the way lower.  After yesterday's big technically bullish day for cotton that we spoke of in detail, the walls came crumbling down today just as quickly as they were erected.  December cotton collapsed after failing to find additional buying this morning, settling down 171 points and right back in the heart of the tried and trusted ole range at .6252.  As good as the market looked technically 24 hours ago, it looks just as bad right now.  The grains were also lower across the board, but losses were fairly limited.  Some of the bearishness came in the middle of the night when the European Central Bank suggested that additional stimulus measures were likely as the European economy continues to struggle.  This news sent the dollar index soaring and the index is currently trading some 1300 points higher today.  As you know, a strong dollar in theory hurts our ability to export goods (including agricultural commodities) overseas.  The Dow Jones reacted most favorably to the news, as it always seems to do when the global money supply is artificially increased.  The Index is currently trading almost 350 points higher on this Thursday.  Perhaps another reason equities are doing so well is that when you think about the problems in China, the problems in Europe, as bad as it seems here at home, we have it much better economically than almost any place on the globe.  Back to the grains for a second, the export report today confirmed a recurring theme:  robust sales for soybeans, lackluster sales for corn.  Corn prices advanced to a weekly high early in the session before retreating after the export report was issued.  There will be some rain coming into the Western corn belt over the weekend that may delay some harvesting, but by in large, weather remains close to ideal for the grain harvest as it turns the corner headed for home.  I just see continued two-sided trading for both corn and soybeans as that harvest winds down.  We should have sold volatility and time value weeks ago like we suggested, it would appear.
Inside the Cotton Market
The cotton market tried with all of its might to forge higher this morning as additional buyers came to the table after the large increase in December open interest yesterday as prices made an eight week high but as we inferred yesterday, those levels were simply another change to sell the upper end of the long term range.  Despite a better than expected export report at just under 100,000 bales (but well shy of the weekly needed number to reach the USDA lofty expectations), once the traditional 10:30 am approached, buyers dried up in a hurry and then those left with new long positions were essentially looking at each other wondering who would blink first.  The next thing you know, we are 70 lower, then 100 lower, then 150 lower and all of these new longs are ripping up their tickets and throwing them in the trash and going to the nearest dimly lit bar.   As we have touched on several times this year, these speculators that continue to try and help buoy the cotton market based simply on watching a chart are doing themselves no favors. Fundamentals simply do not favor a higher cotton market.  Two thoughts come to mind:  Albert Einstein said "The definition of insanity is doing something over and over and expecting a different result"...I like to put it in more visual terms, "If you continue to beat your head against a concrete wall over and over, it starts to feel a lot better when you quit."  By my count, this is the fourth time since May, that this same chart breakout has been squashed like a Southwest Georgia gnat by trade selling.  Enough of all that, as we guessed right for a change yesterday, the rains in West Texas came and went with little to no damage and that combined with the strength in the dollar was enough to see that the cotton engine ran out of steam as quickly as it left the station.  Most cotton producing areas of the Texas panhandle saw between 1 and 3 inches of hard, fast moving rain with little to no hail damage.  The hail damage was mainly confined to Western New Mexico (where no cotton is planted) and the largest forecast rain totals are for Central to Southeastern Texas (where little cotton is planted and where harvest is further along).  As I mentioned earlier, the charts look in total disarray once again after today's plunge.  The better part of six trading sessions' worth of gains were wiped out in one fell swoop today and if the market trades lower tomorrow, we will likely be back below the lows of last Tuesday's big 200+ point move higher.  That said, I don't think we are going to totally collapse.  Crops around the globe do appear to be getting smaller and while I believe the US crop to be bigger than believed, that hasn't been proven yet.  Our plan of POPing cotton and simultaneously selling recaps or forward contracting continues to work and today's action should remind you that taking the LDP without selling physical cotton can leave you wide open to the downside in a market move.  My guess is that we will move right back into the boring .6100 - .6250 range that we have (not) enjoyed for most of the last couple of months.  A return to a LDP payment in the 500-650 range is probable, in my opinion.  Longer term, I will simply reiterate the main tenet of my thoughts about the cotton market.  We are not going to spark a long term, longer range bull market while demand for cotton shrinks.  I simply don't think that is economically possible.  Government programs can keep this market artificially inflated somewhat; they can not stimulate a bull market when 100 million bales sits casually above the market waiting to be sold on a higher market.  I just don't think that can happen.