Daily Market Update - November 12, 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           .6203               .6008                .6034               - .0119            - .1862

Dec 15 Cotton            .6617               .6470                .6481               - .0112           - .1400

Dec 16 Cotton                                                               .6674               - .0110

Sep 15 Corn                4.1975             4.0875             4.1350             + .0375          - .4950

Nov 14 Soy                 10.8675           10.4450           10.4825           - .1825          - .8675

Nov 15 Soy                 10.5675           10.2400           10.2600           - .1150          - 1.0075

July 15 Wheat             5.6250             5.4250             5.6150            + .1675          - .8375

 

Cotton LDP Payment - 2.64 cents/lb (through Thursday)   Estimated 3.11 cents next week

 

Wednesday's Market Report
It was a rather volatile day in the agricultural markets as cotton prices posted their lowest closing value in the March contract and sits on the verge of a new multi-year low, while soybean prices continued their wild roller coaster ride. Even usually-boring wheat got involved in the fireworks today.  Cotton prices finished higher yesterday on the strength of speculative buying but couldn't muster any follow through at all today and we saw prices really roll over and die as a result.  The soon to be mature December contract lost 136 points today, while the now dominant March contract posted a new low close at .6034, down 119 ticks.  Values for next year's December was off by 112 points at .6481.  It's a long way between now and then, but I had a feeling that .6700 in December 2015 was looking appealing for some strange reason the other day.  Soybeans continue to give make young traders old with their wild price action on a daily basis.  Led once again by the meal complex amid continued logistical delays, soybean prices for spot November shot to 10.87 early this morning before a huge wave of selling drove prices back some 40 cents.  The November contract closed at 10.48, down nearly 20 cents.  I've written the Soybean Obituary way too many times to attempt it again.  It wouldn't surprise me if they are up 30 cents or down 30 cents tomorrow, or both!  We saw strong gains in the wheat market today, with prices higher by 15-17 cents on the news of severely harsh weather coming out of the North on freshly planted wheat in the heart of the US growing region, while reunited tensions between Russia and the Ukraine were helping add to the gains.  Crude oil took another hit today, losing another $1.00+/barrel, while the stock markets rallied late to put in a 7th consecutive positive performance, albeit by the narrowest of margins. 
Inside the Cotton Market
 While volume of contracts traded continues to be in huge numbers (another 53,000+ today) due to the rolling of contracts from December to March, it appears that the outright sellers are starting to outweigh the outright buyers once again in the market.  We see open interest shrinking over the last several days, which indicates several things, but chiefly that newly-minted speculative longs are giving up their positions even before they can get good and adjusted to them.  And why not, as there just simply isn't a good reason to be given to be long this market from a speculative point of view.  We have seen from past export reports that when prices move toward .6500 and certainly higher, export demand all but dries up.  So with stocks both here and abroad set to grow by the end of the year, I would argue that .6500 is now your effect cap on this market.  So the path of least resistance must be lower over time.  Most market participants are attending the Sourcing Summit in Arizona, where merchants and mill buyers get together and consume drinks and potentially cotton business.  I would assume that with prices bumping up against five year lows tonight, we may get some business done.  If we do, we could see prices bounce tomorrow some between that business and people trying to buy a new low.  Generally, a close like this will bring in more speculative selling however.  Therefore, between looking at the export report in the morning and a cue from the market to see if any business might have been done, tomorrow should make for an interesting market.  I still think any significant rally (ie 150-300 points) would be met with heavy selling.  As for the LDP, we are looking for a significant increase beginning on Friday morning, one that should be north of 300 points.  While we sold very little cotton this week as the number regressed, growers should be prepared to take their LDP next week as we start to fill contracts during the meat of the harvest season.  Buyers are well within their means to enforce contract penalties of up to 20 points per day (20 days after a bale is classed) if we delay invoicing contracted cotton in order to speculate on the LDP. 20 points per day would certainly quickly eat up any potential LDP gains.  As I've said before, we will be happy to help you with puts or calls in an effort to protect future moves in the LDP payment.  Still ultimately, we do believe that prices will slowly buy surely sink, especially if the December contract rides off into the sunset next week with little fanfare as we suspect.  Should we be wrong on that assessment and someone tries to squeeze the December between now and then, certainly use that rally as a pricing opportunity (especially with the increased LDP).  Therefore, some out of the money May puts might be some pretty good insurance against an LDP that we expect to get bigger over time as the market moves lower.
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