Ag Market Update - September 29, 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          .6125              .6055              .6100              + .0025          - .0342

Dec 16 Cotton          .6139              .6080              .6124              + .0028          - .0454

Dec 17 Cotton                                                        .6367              + .0016

Dec 15 Corn             3.8950            3.8500           3.8950             + .0275          - .3150

Sep 16 Corn             4.0475            4.0150           4.0375             + .0100          - .2425

Nov 15 Soy              8.8475            8.7350           8.8450             + .0750          - 1.2100

Nov 16 Soy              8.9025            8.8125           8.8600             + .0200          - 1.0600

July 16 Wheat          5.2425            5.1625           5.1850             - .0150           - .7850

 

Cotton LDP Payment - 7.39 cents through Thursday (estimated 7.67 cents next week)

 

Today's Market Report
Agricultural row crop commodities have enjoyed some quieter, two-sided trading since our last update, even as stock/equity markets have taken another turn for the worse in our stead.  While I am not ready to say the "low is in" for cotton futures, it does appear that we have at least posted a short term bottom for prices. While volume was low and action muted, December cotton did manage to achieve its fourth consecutive higher close at .6100, up 25 points on the day.  The grain markets were mixed today but have generally been higher during the last week.  Today corn and soybeans were higher while wheat was fractionally lower. It does seem that wheat and possibly corn have put in significant lows in recent weeks.  Richard Brock made the argument for the possibility (corn) in this week's Brock Report citing likely lower US yield average, lower stocks to usage, lighter farmer selling due to bin capacity, help from wheat prices, and technical considerations.  While significant lows may indeed be in place for corn and wheat, soybeans remain less of certainty as early yields are better than expected and most bin space will likely go to hold corn.  And to, while lows may indeed be in place, this certainly doesn't mean an immediate return to a bull market.  Instead, less volatile and sideways, choppy trading in more likely for the foreseeable future.  Tomorrow's grain stocks report and the October 8th WASDE should go along way in determining whether these lows are indeed in for corn and wheat.  For now, it would appear that $3.50 corn and $4.75 wheat are probably a safe bet from the long side.  Stocks are fractionally lower today, but losses are minute compared to yesterday's bloodbath when the Dow Jones lost some 325 points.  Most of these recent losses in the stock market have been attributed to the "lost allure" of the commodity markets that we watch every day.  Glencore, a commodity trading and mining company and one that we sell a good amount of cotton to here at McCleskey, lost nearly 30% of its stock value in yesterday's big sell off.  Other companies like Noble and Olam have seen stock pressure recently as well.  All of these companies rose to prominence during the commodity price surge from 2007-2012 and are now certainly feeling the ill effects from commodity prices during a pronounced bear market and then exacerbated by economic downturns in China and Brazil.  After a brief rebound late last week, cattle futures that we mentioned last week have also taken another nosedive, finishing limit down in both feeder and fat cattle today. 
Inside the Cotton Market
As mentioned earlier, cotton prices are looking about as good as they can look at .6100 to be totally honest with you.  The market plus LDP combination even on base grade cotton looks pretty enticing this week with only one problem; hardly anyone can get in the field to take advantage of the possibility because we are will into our 7th or 8th day of damp, gloomy, non-cotton-picking weather here in the Southeast.  The improving tone in the grain markets, along with the possibly crop damaging weather have likely been the impetus for the slight increase in prices over the last 4-5 sessions.  There is also a lack of natural sellers at these levels for the time being and the trade is willingly buying into the market at these depressed prices.  Yesterday's crop progress report would seemingly be beneficial for cotton as the good/excellent category was reduced from 52% to 50%.  However, when I look at the weather forecast for West Texas, I don't see how the crop out there can be backing up with recent spotty thundershowers and daytime highs still in the upper 80s adding wanted/needed heat units.  Every expert I've spoken to regarding the West Texas crop said that September weather would determine the size and scope of their crop: I can't imagine how they could have asked for better weather. The forecast out there looks cooler into next week, but still plenty good for cotton development.  Here at home is a different story.  While thus far we have been lucky in most of Georgia to avoid unwanted heavy rain that would cause yield loss, those west of us in Alabama and the Florida panhandle have not been as fortunate.  Rain totals of 5-8 inched have inundated those areas in the last few days.  Almost the entire Southeastern region has been unable to harvest peanuts or cotton for more than a week now due to weather issues.  Thousands of acres of peanuts lie on top of the ground and it will likely be 2-3 more days before they can be harvested.  I feel certain, having not seen the sun since early last week, that cotton that has been defoliated but not picked will fall into the light spotted category.  That said, the forecast does look to improve toward the end of the week and into next week whereby some much needed harvesting can start to occur.   As for the market, I would look for more sideways to slightly higher prices in the very near term.  That said, I think I would have to turn bearish once again if prices moved back to the .6250 - .6400 level if we see the weather take a turn for the better.  It should be noted that while cotton reads .6100 on your quote screen, even those that have done zero marketing all year should see prices that moderately exceed .6100, especially if you can muster some high grading cotton.  Heck, I would think that even a base grade of cotton today, when you add market (.6100) plus LDP (.0739) plus value gained from cottonseed would net a grower somewhere pretty close to .7000 for that bale.  Listening to most growers during the spring and summer, 70 cents was the "holy grail" for where they would "let go of their cotton".  While the situation is far, far from ideal, I don't think its nearly as bad as one might think.  We just need the Pakistanis and the Indians to keep selling their cotton at a pretty good discount until we can harvest some bales to take advantage of a somewhat inflated LDP.  Here's to better weather, sooner than later.  That El Nino prediction is starting to become more of a reality, if not.