Ag Market Update - September 3, 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          .6304              .6221               .6276              + .0027        - .0146

Dec 16 Cotton          .6200              .6189               .6189              unch            - .0389

Dec 17 Cotton                                                         .6303              + .0004

Dec 15 Corn             3.6800            3.6125            3.6150             - .0600        - .5950

Sep 16 Corn             3.8575            3.8050            3.8100             - .0325        - .4700

Nov 15 Soy               8.8250            8.6825           8.6900             - .0500         - 1.3650

Nov 16 Soy               8.7175            8.6000           8.6375             - .0350         - 1.2825

July 16 Wheat          4.9825            4.8375            4.8425             - .1200         - 1.1275

Today's Market Report
While the macroeconomic fears have seemed to at least subside in the last couple of days, the current temperature and trend for commodities continues to be cold and bleak.  The stock markets put in a very nice performance yesterday and are looking to add to those gains today on the idea of more global stimulus, while the dollar continues to strengthen and commodities continue to fade.  Cotton has managed to slightly buck the trend with a narrow gain of 27 points in December today, but not before making a nominal new low yesterday.  December cotton settled at .6276 today and briefly got back above .6300 after touching .6211 yesterday. All in all, still a whole lot of nothing going on in the market we watch the closest.  The grains, on the other hand, turned in another pitiful performance and corn, soybeans, and wheat are all now firmly on yearly lows.  The export report for grains was a mixed bag with very solid soybeans sales, mostly still headed on a boat to China, while corn and wheat numbers were pretty pitiful, even at these low values.  All three commodities are seeing very low export sales demand when compared to a five year trend.  Private estimates that seem to confirm or even grow the crop that the USDA estimated three weeks ago aren't lending any help to prices.  Neither is the fact that large sums of corn and soybeans from last season are still unpriced and sitting in a bin with a big, largely unhedged crop from this year soon to arrive neeing somewhere to go.  They say it is often darkest just before the dawn; let's hope so because it is pitch black right now when it comes to corn prices at 3.50, soybeans at 8.50 and wheat at 4.75.  I mentioned that stocks are doing better as the week can see the finish line in sight; this is largely due to the idea from the European Central Bank that they are open to the idea of further stimulus to put another band-aid on a flagging economy.  While I simply roll my eyes at the idea and wonder how this can be good for a global economy in the long run, it does let stockholders and stock brokers sleep easier at night in the short run. Crude oil is still trying to figure which end is up after the biggest roller coaster ride in 25 years or more for that once-precious commodity.  Currently, oil is up fractionally at 46.80, while gold and other metals are some lower.
Inside the Cotton Market
There isn't much I can say about cotton that I haven't said in the last two dozen or so updates.  We are still in the same tired range and while many believe that we should check out the old .6120 low from 8/12/15, I'm not sure that I am in that camp at the moment for reasons we have talked about over and over.  If the economy can remain intact from duct tape and barbed wire or whatever it needs, we should stay above water until next Friday's WASDE release at the very least, which will certainly give us trading direction going forward.  I still believe that we will ultimately trade lower if the crop that I believe to be out there is indeed out there.  I was unable to make it to the Georgia state ginners meeting today, but sources in the room said that not one gin representative indicated that they had a poor crop in their respective area and I've been to fifteen or twenty of those things; that room usually has some poor mouthin' folks sitting in it.  It was indicated that the classing office was geared up to expect upwards of 2.3 million bales from Georgia this season, which is the number I have picked out of the sky for a few weeks now (the USDA is currently carrying 2.1 million).  The export report today was indifferent again at roughly 70,000 bales, but it was nice to finally see China show up on the report this week for the first time in a while.  On the flip side, there was this article today in print, http://agriculture.einnews.com/article/284483852/YL-Up7i3hG9KF4Jw that indicates that China will be a net EXPORTER of cotton by 2020.  For a country like the United States that exports 75% of its production, this, in no way, shape or form bodes bullishly if that theory indeed comes to fruition, especially when China has been our biggest customer for the last two decades.   Everybody that has done their time in agriculture knows that everything goes in cycles and right now it is hard to argue that we are in a pretty rough down cycle when it comes to prices.  It will get better; I don't know when or what will ultimately be the catalyst but prices will rebound sooner or later. 

To change gears for just a minute, I would like to thank the guys at JR James Peanut Brokerage for bringing my attention to a piece that was authored by a fellow named Dennis Shields of the Congressional Research Service that delved into the current US Peanut Program.  The 24 page paper can be found here and for nerds like me, it is some pretty good reading.
I bring this to your attention because I send this letter to approximately 500 people and I get response from peanut people at about a 10:1 ratio...that is about 10 inquires a year from peanut people and about 1 a year from a cotton interest.  Peanuts are a big deal in Southwest Georgia and to be perfectly honest and in my own opinion, the current program for peanuts as set forth by the 2014 Farm Bill is setting up to be an oncoming freight train for the Federal Government and Mr. Shields goes over some possible ramifications of the current program and possible theoretical changes to the bill.  While most believe that the law will ultimately not change, a current ground swell to have a government "buyout" of generic base seems to be gaining some steam. I, for one, can't see that happening, but Lord knows I've been wrong plenty times before.  And I'm not smart enough to know how this will all play out, but with a peanut reference price that was set way too high compared to competing crops and other markets at multi-year lows and going higher no time soon, overproduction of peanuts for the next 2-3 years seems all but a certainty.  I am in the minority, but I do believe something will ultimately "give" within the peanut program as we know it today; which is the ironic thing in that we really don't even know what we really have.  Give the paper above a read over the long weekend, it will get you pretty well up to speed on a program that has its challenges going forward. 

Reminder:  Our annual pre-harvest dinner will be next Thursday at the Dawson CC at 6:30 pm.  McCleskey Cotton customers should receive notice in the mail by the end of the week.  We hope vendors, bankers, and merchants will join us for this meeting next week also.