Ag Market Update - September 1, 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          .6318              .6220              .6263              - .0037          - .0179

Dec 16 Cotton          .6235              .6200              .6202              - .0080          - .0376

Dec 17 Cotton                                                        .6307              - .0083

Sep 15 Corn             3.6250            3.5525           3.5600            - .0775          - .6675

Sep 16 Corn            3.9050            3.8450            3.8600            - .0575          - .4200

Nov 15 Soy              8.8675            8.6850            8.7400            - .1350          - 1.3150

Nov 16 Soy              8.8250            8.6650            8.7050            - .1325          - 1.2150

July 16 Wheat          5.0375            4.9650            4.9800            unch             - .9900

Today's Market Report
Renewed concerns regarding China's faltering economy led to another widespread sell off in equities and commodities to kick off the month of September today.  By hook or by crook, cotton futures for the most part managed to avoid the carnage for the most part as December cotton only settled 37 points lower on the day, but back near the bottom of the long term range at .6263.  Distant month and year contracts suffered heavier losses and I will attempt to take a shot at explaining that in the section below.  Looking at my screen, it would seem that wheat futures which closed unchanged to a penny higher today was the lead horse today which can offer some insight on how bad everything else traded.  Corn was lower by 7-8 cents and soybeans off by 12-13 cents as speculators were heavy net sellers of both on the day.  Questions about demand and impending harvest sales pressure were also cited as reasons for the negative performance in corn and soybeans today. Weather across the corn belt remains a mixed bag as we turn the corner and look toward the end of the week and into the holiday weekend.  While heat stress could limit crop potential, the markets aren't trading as if they are too concerned at this point.  As I write this at 3:25 pm EST, the Dow Jones is trading about 425 points lower and has been in deep negative territory all day due to disappointing factory data out of China overnight.  Global stock markets have been lower as well. The wildest market since our last update on Thursday of last week is certainly the energy sector.  We saw crude oil jump 25% in value in just three sessions before selling off again today.  That was the biggest move in crude oil in more than 25 years.  It is tempting to try and trade crude oil, but I think that is temptation best left alone right now in my opinion.  Current lack of consensus out of the Federal Reserve regarding interest rates is not helping at the moment either.  Most believe that a lean toward a delay in raising rates is most likely in the cards, but some think that Yellen, the current chief, might be inclined to blaze her on path, regardless of whether the suits on Wall Street like it or not.  I personally think that would be a fresh new take, but one that I can't see happening at this point in time.
Inside the Cotton Market
It is the same old story with cotton; we can't make a good guess on what this market is going to do until we know what kind of crop we have.  I could really stop right there and you will probably get as much out of this report as you will with me continuing to ramble on.  I will say that the range of closing prices, while possibly closing that way just by coincidence, does lend some idea into what market participants are thinking.  The December 15 contract, as mentioned earlier, closed 37 points lower.  The March 2016 contract was down 54 points, while the December 2016 and 2017 contracts settled roughly 80 points lower.  On top of this, you have the October 2015 contract, which is rarely even mentioned, much less used down only one point today.  In addition, as we move toward delivery of that month, there is only 119 contracts (11,900 bales) of open interest.  In other words, I don't think anyone really wants to touch it with a ten foot pole.  And all the while, we are seeing certificated stock slowly buy surely dwindle as the days go by and we wait for some 2015 bales to make it to market.  The certificated stock now sits at only 67,000 bales as some are decertificated (and I assume shipped) each and every day.  What does all of this mean?  Well, it would seem that the market believes that eventually, we will have all the cotton we need as evidenced by the weaker distant month contracts.  However, will we have the cotton we need for 4th quarter orders and/or the delivery process associated with the December contract?  That seems to be the question as December, even in the pathetic outright price, remains inverted above the March and gains ground on it most days, even down days like today.  You seemingly hear about a potential "squeeze" all the time, but one rarely evolves.  And I don't forsee one evolving this December with demand for all commodities as bad as they currently are.  However, back to my original statement: we simply don't know the size or the quality of the US crop as we sit here on September 1.  Take right here at home, in Terrell County, Georgia for example.  We have potentially the best crop we have had (I believe) in my 15 years here at the gin.  However, out of nowhere we received more than five inches of rain last Friday night.  Since then, skies have mostly been overcast with high humidity when is a prime recipe for boll rotting.  Someone growing cotton 50 miles from here may have not had a really good rain in going on 60 days and wonder if I know what in the world I am talking about.  The same scenerio goes for parts of West Texas.  I think if we knew we had a 14.5 to 15.0 million bale crop, with the current global economic landscape, we would probably be trading with a "5" in front of the current market.  However, we can only trade the 13.1 million number the USDA laid on us last month, which lends our market to temporary tightness, even if that is only shown in the Dec/Mar inversion.  I still think, for now, market participants want to buy our market below .6200 and sell it back out above .6600.  The speculator, many of which have been chewed up and spit out a half dozen times this year, may have finally had enough for the time being.  Again, I think all merchant interests have their people in the fields doing boll counts and waiting until the new batch of numbers, due out a week from Friday, on September 11th.  Between now and then, I think it is more of the same, unfortunately.