Ag Market Update - October 5, 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         .6223               .6020              .6187              + .0173          - .0255

Dec 16 Cotton         .6246               .6114              .6237              + .0159          - .0341

Dec 17 Cotton         .6400               .6400              .6448              + .0153

Dec 15 Corn            3.9400            3.8875             3.9375            + .0450          - .2725

Sep 16 Corn            4.0800            4.0350             4.0800            + .0500          - .2000

Nov 15 Soy              8.8600            8.7200            8.8325             + .0900         - 1.2175

Nov 16 Soy              8.9300            8.8025            8.9100             + .0825         - 1.0100

July 16 Wheat          5.2900            5.2075            5.2800             + .0275         - .6900

 

Cotton LDP Payment - 7.68 cents through Thursday

Today's Market Report
It has been a "green dominates the screen" Monday in the markets with nearly everything on my quote board enjoying higher prices.  Cotton is seeming leading the way as the torrential and historic flooding in the Carolinas has underpinned the market today.  December cotton gained 173 points, settling at .6187 and in the upper third of the 223 point range today.  Volume was strong, especially when compared to the last several boring sessions at nearly 30,000 contracts.  The grain markets continue to look like a complex that has made a pretty convincing bottom as we touched on last week.  Corn was higher by 4-5 cents today, while soybeans gained 7-9 pennies.  Wheat prices were also fractionally higher.  The October USDA crop report on Thursday will provide further direction for the corn and soybean markets going forward.  A smaller corn crop is expected and needed to justify the call for a bottom in prices.  Some commodities, such as crude oil and gold have seen their gains on the day shrink as the dollar index has moved higher and into positive territory late in the session.  The stock markets are on fire, with the Dow Jones up more than 300 points as I pen this update at 3:09 pm.  The fact that the Federal Reserve is now less likely to raise interest rates in the near future, and especially in October after a woeful jobs report last Friday.  As I've said before, the whole thing sounds completely backwards to me when negative economic data leads to gains in the stock market, but what do I know.  I am starting to find myself believing some of the spin doctors that argue that the Fed will never raise rates because Wall Street has become totally addicted to ultra-cheap money.   I certainly don't expect these guys to be proven wrong in the current calendar year.
Inside the Cotton Market
As one of my customers said last Friday, "This is starting to get serious", when referring to the incessant dreary, cloudy, damp, rainy weather that we have been experiencing over the last two weeks.  Unfortunately, for our colleagues in North, and more specifically South Carolina it is way past the point of serious.  Upwards of two feet of rain has fallen in parts of South Carolina in the last several days and it is still raining lightly in the area today.  There is no doubt that the cotton and peanut crops in the Carolinas have been very adversely affected, but how much is anyone's guess at this point.  The USDA had the Carolina/Virginia cotton crop pegged at 1.31 million bales in the September report and I would have to guess that number is now closer to 1.0 million bales or even smaller.  What is left in the field would certainly see grade degradation going forward.  Here at home in South Georgia, the weather has been much more detrimental for the peanut crop, although it certainly isn't helping cotton either.  While we have been spared the torrential rains that the Carolinas have seen, it has literally be almost two weeks since we have seen the sun.  Thousands of acres of peanuts have been on top of the ground for the better part of the month of September and those that have not been dug are seeing their vines grow withered with the bad weather.  It is almost now or never for the peanut crop here in South Georgia.  We are going to hope that the weatherman is finally going to be correct with the forecast for the balance of the week, which calls for warmer, sunnier, and more importantly dry days for the next several days.  I am certain that we are dealing with some level of boll rot in mature cotton here in our area, but I don't think the crop potential has been greatly affected as of yet.  Back to the market, today's move was impressive, taking out ten sessions of sideways trading in one fell swoop.  The December contract powered through the 20-day moving average, hitting buy stops that sent prices above .6200 around noon.  Unfortunately, I don't believe this move will ultimately be sustained.  I think prices will have a hard time moving beyond the .6280 area, and will certainly run into heavy trade selling if they reach the .6400 stratosphere.  While the problems are real for production in the areas I spoke of earlier, the fact of the matter is the 300-500k bales that have been lost have probably been replaced with near perfect growing conditions to close out the season in West Texas.  The market could move sideways to higher in the short term until bales start to fill the pipeline, but my feeling is that weeks like this when you have a lower loan redemption price or a inflated LDP and then a subsequent futures rally like today, there is a tremendous amount of selling above the market as growers/cooperatives take the attractive combination.  Like the grains we will have another monthly USDA crop report on Thursday, which will be interesting, especially with regard to the size of the US crop and with the export projection.  Any losses sustained in South Carolina and North Carolina will not be reflected in this report as crop estimates will be as of October 1.   As for marketing, I would suggest that growers with little to no cotton contracted look at buying March puts should we see the market reach the .6350 to .6400 level.  With now even more cotton likely moving to lower grade status, those that make higher grades should be rewarded, thus I wouldn't recommend forward contracting at even basis levels this close to harvest.  A March 62 put for 200 points if we could get the market another 150 to 200 higher would be some pretty good insurance while leaving any potential upside in the market/basis there for the taking.  The next couple of days will be interesting, both in watching the quote screen and the skies for better weather.