Daily Market Update - December 1, 2014

 

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     

 

Mar 15 Cotton           .6030                .5908               .5918               - .0090            - .1978

Dec 15 Cotton            .6420               .6350                .6353              - .0083            - .1490

Dec 16 Cotton            .6337               .6337                .6479              - .0112

Sept 15 Corn              4.1100             4.0350              4.1000           + .0100            - .5300

Nov 15 Soybeans     10.0300            9.8800             9.9725            + .0025           - 1.2950

July 15 Wheat            6.1775            5.8050              6.1650            + .2750           - .2875

 

Cotton LDP - 5.91 cents (through Thursday)

Monday's Market Report
Despite our belief that we would see a marginal rally in cotton prices, the first trading day of December did us no favors with regard to that opinion as prices fell across the board.  Spot March cotton lost 90 points after follow through buying from last week never appeared, and settled at .5918.  Next year's December contract was down by a similar amount at .6353, down 83 points.  The grains were a little more active today, led by a gigantic gain in the wheat market.  July wheat gained nearly 30 cents and traded at a 5 month high on the reports of more damaging weather on an already suffering wheat crop.  At 6.17, we have now seen wheat gain more than $1.10 bushel since making a now certain low at 4.99 back in October.  Most of the weather issues now seem to be centered around the Russian wheat crop, but we still have plenty of issues with the crop here in the States as well.  I just don't see a whole lot of wheat planted in our general area, and if prices continue to move higher as they appear they might, I suspect we might see a late rush to get some wheat in the ground.  If you are one of these, I would look at pricing a small amount in the $6.25 - $6.30 range and be prepared to do more if prices break through that small area of resistance.  Corn and soybeans both spent time on either side of unchanged today before both closing fractionally higher.  And by fractionally, I mean a penny higher in both corn and soybeans.  The soybean market saw sharp losses last Friday, but the bears were unable to follow through today.  We still believe that the soybean market ultimately has more room to the downside, especially when prospective planting ideas are announced early next year. The big news over the last several days has been the unbelievable break in the energy market.  While crude oil was able to gain more than 3.00/barrel today, we saw a shocking loss of more than 10% last week and at prices below 64.00/barrel, you have to go back to May 2010 to see crude at that level.  While we have quickly moved back to the 69.00 level, it would appear that some longer term damage has been done technically to crude.  While the weakness in crude will probably bleed over into other commodities, the reality of cheaper gasoline and diesel will certainly have a positive effect on most everyone, especially the Christmas shopper on a tight budget. We could ultimately see gasoline prices move closer to $2.00/gallon by the end of the year which would certain free up some discretionary income.  Gold and silver prices joined crude on the rebound today as the dollar index took it on the chin.  Stock prices weren't as lucky as all three major indexes finished the day lower.
Inside the Cotton Market
 When last we left, we discussed the idea of cotton prices moving some higher after holding firm at the .5850 level last week in anticipation of a larger than normal export report.  Well when Friday's muted session came and the March contract traded as high as .6070 and had a 300,000+ bale export report, we felt pretty smart...for a few minutes anyway.  Once the feeling passed on the export number and the market closed roughly unchanged, that idea didn't seem nearly as bright.  Today, we saw weakness pretty much for the entire session and the market was weakest on the close (never a good sign).  All in all, the losses were fairly static across the board at 80-95 points lower and now we sit a tenuous 70 points or so above that .5853 low from last week.  Further troubling is the monthly close from Friday on the continuation chart at .6096 (basis Dec 14).  This is the lowest monthly close since August 2009 when the market closed that month at .5776.  While the export sales number was fairly impressive last Friday, the early reports from the big Black Friday holiday were less than expected, as retail stores reported sales at 6-8% less than last season.  With the big troubles ahead for crude oil and its subsequent spill over into other commodities due to fund rebalancing, etc., our call for higher cotton prices may have been premature.  It was probably a little too cute to look for higher prices when we ultimately remain bearish longer term in the first place.  For now, we will let the market give us a cue as to the near term direction as a close below .5853 or one above .6037 will give us an idea.  It would really take a close above .6180 for the bears to be really concerned, but it would take a lot of buying to see us make that happen.  Again, we still want to play the LDP+strong basis+market combination when it makes sense to do so.  As fate would have it, that combo would have worked well on Friday when the market was bumping up around .6070.  Unfortunately, most buyers were still sleeping off a bunch of turkey on Friday and were not in the office.  Today, with prices back closer to .5900, we would like to see the market move back toward the top of the range before pricing your cotton.  While it doesn't appear that the basis is just going to crap out, please be cognizant that every time the market rallies enough to shake some bales loose, the basis is probably going to get a touch softer as a result.  If you have cotton free and clear to sell, we need to have your recaps ready to offer to perspective buyers.  With the possibility of netting 70 cents on the table for high grades, I think growers should be willing to let buyers have their cotton at that figure.  Hopefully we will see prices bounce back some tomorrow on a "Down Monday, Up Tuesday" scenario and get an opportunity to do just that.
 
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