Daily Market Update - November 20, 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           .5988                .5874                .5916              + .0006           - .1980

Dec 15 Cotton            .6380                .6299                .6298              - .0039           - .1583

Dec 16 Cotton                                                                .6462              - .0042

Sept 15 Corn              4.0925             3.9800              4.0850            + .1050           - .5450

Nov 15 Soy                10.0600            9.9200             10.0450           + .1200          - 1.2250

July 15 Wheat           5.6550              5.4925              5.6450            + .1100          - .8075

 

 

Cotton LDP - 5.88 cents per lb. (11-21 through 11-26)

Thursday's Market Report
 Sorry for the lack of updates recently, but as you might imagine with gin season at the peak time, there simply hasn't been enough hours in the day to get a report to you.  In fact, this one might be shorter than usual but there are some things going on in the cotton market that we need to touch on.  First, we have seen the grain markets lose some of their luster in the last several days, but closed strongly today.  Corn, soybeans, and wheat all closed with gains of more than a dime.  With prices lower, farmer selling has slowed in the Midwest, while speculators took some gains on recent short positions.  The export report was a mixed bag for grains with good corn sales and lackluster soybean business.  I am repeating myself but the grains are trapped in a conundrum of bearish fundamentals and bullish technicals. I always tend to believe fundamentals eventually trump technicals.  Outside markets were firm as the dollar was slightly lower, even with more positive economic data.  Crude oil is up $1.00 as market participants are betting that OPEC will make a move to lower output at their upcoming Thanksgiving Day meeting. 
Inside the Cotton Market
 Despite not posting an update in a week, there remains little good news to report for cotton prices.  The market sank once again today with March cotton closing at .5886, down 24 points.  Perhaps more ominously was the way the December contract traded on the day before First Notice Day.  The December contract lost 80 points and was down more than 130 points at one juncture, as it appears any idea of a squeeze is a distant memory.  December traded as low as .5784, so it makes good sense that we will see the March contract visit that number once it is forced to stand on its own.  The biggest news to report to growers over the last week, and I'm sure most of you know already, is the sizeable jump in the LDP payment.  After a week of a 343 point payment, that figure will jump to 588 points beginning in the morning as both New York and World prices continue to sink.  While I do believe we will see larger LDPs to come in future weeks, this feels like a proper time to claim the LDP on a portion of one's cotton.  With merchants trying to free up cotton via a strong basis bid on cotton, once you combine a strong basis with a higher LDP, we are seeing pretty good returns on better quality cotton, even at  current futures levels.  My concern is with the higher LDP that merchants COULD get enough high grades offered to them by growers that are willing to sell that this basis would weaken as a result.  Right now, the only saving factor in reaching a maximum selling price right now is the strong basis.  Otherwise, when the price goes up, the LDP will go down and vice versa.  We are encouraging growers with high quality cotton that is not already contracted to offer these bales ASAP to collect this combination.  As for the market in general, I still believe that we could see prices consolidate in the .5700 to .5900 range, but we should ultimately sink lower toward the .5500 level.  I'm no technician, but it doesn't take a genius to look at a monthly cotton chart and see that there really is no chart support until you reach the mid 30s.  Are we going there?  I have no idea, but I do know that prices haven't gone low enough for the mills to come back in and buy cotton in huge quantities.  While the India and China are taking measures to keep their growers somewhat happy with cotton prices and to be totally honest with a US support price of give or take .6300 given the current calculations of the LDP, I still say that supply and demand will ultimately win the tug of war with government policy.  We will have to go low enough for cotton to regain and substantially grow market share.  Otherwise, if we continue to grow acres that we don't need, while at the same time improving the yield curve around the world, I can see a 3 to 5 year period of prices in the .4000 to .6000 range.   Trust me, as a cotton ginner that is beholden only to volume for his bottom line, it is very hard to type those words.  
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