Ag Market Update - September 14, 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          .6370              .6243              .6255              - .0058           - .0187

Dec 16 Cotton          .6333              .6210              .6223              - .0057           - .0355

Dec 17 Cotton                                                        .6347              - .0057

Dec 15 Corn            3.9400            3.8625            3.9350            + .0650          - .2750

Sep 16 Corn            4.0850            4.0325            4.0850            + .0475          - .1950

Nov 15 Soy              8.8850            8.7450            8.8425            + .1000         - 1.2075

Nov 16 Soy              8.8025            8.6900            8.7500            + .0875         - 1.1700

July 16 Wheat          5.1900            5.0450            5.1875            + .1550         - .7825

Today's Market Report
If it were possible to muddy the water any further regarding cotton statistics, the USDA managed to do just that last Friday with their monthly numbers.  More on that later.  However, the market was just as confused today as it was on Friday, trading some higher on the day and then lower to finish the session.  December cotton closed at .6255, down 58 on the day.  Further months were off by similar margins.  While cotton put in a strange, indifferent day on Friday, the grain markets did finish strongly after digesting the USDA numbers.  That solid finish last week carried on into this week as corn, soybeans, and wheat all had solid gains again today.  Corn was higher by 4-6 cents, soybeans by 8-10, and wheat by 14-16 cents.  While the entire commodity sector remains fragile, an argument could certainly be made that the grain crops put in an early seasonal harvest low last week.  The USDA reduced the corn crop, albeit very modestly, and that seemed to serve as the trigger to take prices higher on Friday.  We now see December corn and November soybeans both 35-40 cents recent lows and the technical picture is fairly constructive for both row crops. How December corn performs if and when it reached the 4.00 - 4.05 area will be very interesting.  Most outside markets are pretty quiet as we start the new week.  The stock markets and crude oil are marginally lower, but given the recent huge volatility, again a very quiet day. 
Inside the Cotton Market
 As mentioned earlier, the report we received from the USDA last Friday was clear as mud.  While almost every cotton analyst in the country believes that the US crop is 14.0 million bales or larger, the USDA raised the crop only 300,000 bales to 13.4 million bales.  The USDA also raised the export estimate domestically from 10.0 million bales to 10.2 million bales despite the fact that we remain almost 50% behind last year's export pace.  The market initially reacted with a 200 point gain from .6205 to .6420 that lasted about 2 minutes before the market moved right back to the mid point around .6300.   At the end of the day, it is mostly likely be another month of sideways action within the .6100 to .6700 range that we have enjoyed for almost one year now.  By the time the October numbers are in black and white, we could/should have enough yield information to know whether the USDA or the private analysts are right about the crop size, specifically in West Texas.  Last time we spoke, we mentioned the weakening monsoon reason in the northern cotton-growing areas of India.  While damage was done, it has been reported that substantial rains have come back to this area since our last update and will probably lend as much weakness to the market going forward as it support over the last couple of weeks as the monsoon was deficit.  Other than this, there just isn't much to add regarding this tired and tedious market at the moment.  More than likely, we will remain right in the heart of this tired range.  If you held a gun to my head and said which way we would exit the range if we did, I would say lower simply based on poor demand, world economic instability, and probable ample supply.  One bright note does continue to be large discrepancy between the Cotlook A index and the Average World Price, which determines the value of the US cotton producer's equity or LDP.  Right now and probably for the next couple of months, the fact that Pakistan is selling cotton so cheap, they are one of the growths that determines the A index.  We usually go by a rough figure of a LDP being triggered when our futures prices are below .6500.  However, with the low Pakistani quote, we are seeing LDP values in the 500-550 point range right now, even as cotton trades around .6300.  Should we see Pakistan not selling cotton so cheap and/or used to compute the A index, we would see this LDP value shrink as a result.  Therefore, I still believe that once you have cotton ginned, classed, and stored, you should probably give a strong consideration to selling the physical cotton to the highest bidder, taking your potential basis gain, adding your LDP to it, and going on down the road.  Remember, we can buy a call option for you if you would like to remain in the market.  Unless I am woefully wrong about the size of this US crop, I firmly believe that those that sell their cotton early are going to be far better off than those that wait.