Ag Market Update - September 23, 2015


by Ron Lee


Highway 118 West, PO Box 171

Bronwood, GA 39826




Agricultural Settlements

Commodity                 High                 Low                  Close               Change            YTD     


Dec 15 Cotton          .6044              .5978               .5997             - .0003           - .0445

Dec 16 Cotton          .6080              .6029               .6038             - .0034           - .0540

Dec 17 Cotton                                                         .6361             - .0012

Dec 15 Corn             3.8450           3.7900             3.8300            + .0250          - .3800

Sep 16 Corn             4.0225           3.9800             4.0025            + .0150          - .2775

Nov 15 Soy               8.6950           8.6100            8.6300             + .0125          - 1.4250

Nov 16 Soy              8.7400            8.6800            8.6900             + .0075          - 1.2300

July 16 Wheat          5.2275            5.1075            5.2125             + .0975          - .7575


Cotton LDP Payment - 5.63 cents through tomorrow (estimated 7.20 cents next week)


Today's Market Report
It has been a typical "No News Wednesday" in our row crop commodity markets today, although it should be noted that December cotton closed with a "5" handle for the first time in its contract life, settling at .5997, down a whole three points on the day.  The market continues to grind lower, but it would appear that the downward momentum is waning, at least in the short term.  Wheat futures lead the grain markets, appearing to have put in a significant low recently, settling 9-11 cents higher.  Corn and soybeans were fractionally higher on the day, corn by 1-2 cents and beans by a penny or less. I would have to believe that both commodities will continue to be range bound as impending harvest pressure should continue to keep a lid on prices, especially for soybeans where early yields continue to show promise.  Corn futures continue to flutter back and forth, higher one day, lower the next with no real direction.  Ethanol data today did no favors for corn demand as stockpiles continue to grow even as production declines.  Commodities outside the agricultural realm were largely lower today even as the dollar index has reversed course lower, here late in the day.  Crude oil has had a wide late-day swing from up $1.50 to down $1.50 as I write this update.  One market that is taking it in the shorts today is the cattle market.  Both feeders and live cattle have settled the session at limit losses today.  For those that have read this report of mine for some time now will remember that I have said that cattle prices would not rise to the sky forever.  It took a couple of margin calls along the way, but hedging our personal cattle production around $1.50 finally looks pretty smart with October cattle looking to head even lower in the short term.  As we found out with cotton in the 2010-2012 time frame, nothing ultimately cures high prices like high prices.  Those lines that wrap around Chic FilA and Zaxby's a time or two are at least an indirect result of high beef prices.  Stock markets are fractionally lower on the day hovering near two-week lows as global economic worries persist.  
Inside the Cotton Market
We haven't penned an update since last Friday price purge lower, but in reality, it hasn't been a tremendous amount of activity to comment on in the meantime.  The market continues to slowly but surely grind lower and as I mentioned earlier, settled below .6000 for the first time today.  For technical gurus, today's close on the chart is a "Doji" whereby the opening and closing prices are the same which in theory implies a exhaustion of one direction, obviously in this case, a lower move.  We will watch tomorrow and Friday to see if we can move prices higher based on this phenomenon.  Otherwise, there still isn't much to talk about regarding our market.  We will see what we get on the export report tomorrow, although we won't know until next week's report whether foreign mills have used this 200-300 point drop to start sourcing cotton from the United States, although anecdotal evidence indicates mills still have not actively bought much cotton in recent days.  It should be noted that this current move lower also coincided with the heavy return of the Indian monsoons over most of last week, only to be followed by dry, sunny weather this week which should be beneficial for the Indian crop.  Nearly perfect weather, with the exception of cloudy weather hindering defoliation here at home, also exists across the US cotton belt with no signs of tropical trouble in sight.  As for market direction, my guess is why we could run the market some lower in the extreme near term, most of the damage for now has been done.  We should fall into the old pattern of harvest-time cotton trading from the early to mid 2000's.  At 60 cents and lower, merchants are unable to get their hands on bales of cotton that are starting to emerge from the fields as growers wait for higher prices.  However, if the LDP is set for the week forward tomorrow at, let's call it, 750 points and the market were to rally 200 points into next week allowing growers to net out prices above .7000, my feeling is that those bales could indeed be sourced.  That is why I kindly shake my head when market pundits predict a move back toward .6600 or .6700, as if that is where you should start to price cotton.  If that indeed happens (and I don't see why we would) there would be no net gain for the farmer as his LDP will only decrease as the market moves higher.  In my opinion, this will be a year where we watch the market + basis + LDP combination to maximize returns each and every week.  I do believe that basis gains early in the year will be most beneficial as merchants do have some cotton forward sold with very little in their possession.  However once that pipeline is filled, I am not as optimistic about those basis levels going forward.  I obviously hope that I am wrong in this regard and basis levels stay strong throughout the harvest season.  In the short term, my guess is the market is about to run out of steam to the downside and short covering rally should emerge.  That said, I think rallies back toward the downward breakout of .6230 to .6300 should be sold agressively by growers with cotton in hand to sell. 

We did start to gin some cotton yesterday, ginning a couple hundred bales as we work out the yearly kinks and bugs.  While we aren't running a full shift yet, if the weather will cooperate, we anticipate being able to do just that next week.  Historically, this is right in line with our average start-up time, and I would anticipate being full speed ahead by the second week in October like normal.