Daily Market Update - October 27, 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     

 

Dec 14 Cotton            .6426               .6331                .6367              - .0014            - .1476

Mar 15 Cotton           .6236               .6159                .6219              + .0002           - .1677

Dec 15 Cotton            .6575               .6535                .6590              + .0014           - .1291

Dec 14 Corn                3.6375            3.4850              3.6300            + .1000           - .8725

Sept 15 Corn              3.9975             3.8675              3.9975            + .0950           - .6325

Nov 14 Soy                10.0825            9.6775             10.0600          + .2850           - 1.2900

Nov 15 Soy                9.9975              9.6625              9.9825           + .2100           - 1.2850

July 15 Wheat           5.5425              5.3950              5.5175           + .0550           - .9350

 

Cotton LDP payment (through Thursday) -    2.70 cents/lb.

 

Monday's Market Report
It couldn't have been more boring day for the cotton market to start the week, while the same certainly couldn't be said for the grain markets and specifically the soybean trade which has seen more twists and turns than a good roller coaster lately.  Cotton price action was dominated by the December/March spread amid sickly volume of less than 14,000 contracts. December cotton closed the session at .6367, down 14 points, while March finished at .6219, up two whole points.  Like I said, watching paint dry would have been more exciting.  On the other hand, you had the Chicago grains where corn, soybeans, and wheat all started the session last night playing defense after last Friday's negative settlement.  However, mid morning saw another huge wave of speculative buying which certainly brought a smile to the faces of Midwestern farmers holding record amounts of unsold supplies of both corn and soybeans.  November soybeans had a 41-cent trading range and finished the day at 10.06, up 28 1/2 cents on the day.  Soybeans for next November delivery closed within an eyelash of 10.00 as well.  Not to sound like a broken record, but with a huge crop on the way and the near certainty that we will plant nearly 90 million acres of soybeans next year, this counter trend rally is flying in the face of fundamentals.  The rally in corn prices today has certainly put some distance between today's close and the early harvest season low.  December corn gained a dime today to settle at 3.63, while next year's prices are now in the $4.00 range, with December 2015 actually above there at $4.08.  I can't imagine that corn prices have a tremendous amount of upside potential with so many bushels in the Midwest yet to be priced, but these rallies continue to pleasantly surprise.  Outside markets were nearly as dull as the cotton market today as they certainly were due a yawner after all the recent volatility.
Inside the Cotton Market
 Gonna be a short and sweet update today; what can you say about those settlements that you see up there in the top heading?  It was interesting that the December/March spread did a complete 180 in the last few minutes of trading, with December losing 50-60 points to March over the last 30 minutes of the session.  However, given all the twists and turns that spread has taken over the last few weeks, I doubt many market participants were overly shocked by the turn of events.  In the just released crop progress numbers from the USDA, the harvest edged past the 5 year average of 41% complete at 42% this week as perfect weather reigns over the US cotton belt.  We should only see that number gain in the coming 2-3 weeks and that probably will lead to December giving up its premium to March and May sooner rather than later.  The crop condition report also ticked up 1% in the good to excellent category and I'm convinced that the USDA will have to eventually raise its estimate for the US crop in the November and December Supply/Demand reports.  While it was certainly premature when they issued a 17.5 crop some months ago, I am still of the opinion that the crop will ultimately be nearly that large. Right now, we are just making tremendous strides toward harvesting a better yielding-than-expected, very high quality crop here at home.  As for the market, it appears that prices are just going to go nowhere fast and remain mired in a boring .6100 - .6500 trading range. While I certainly expected prices to move into the 50s a few weeks ago, it is going to be hard to achieve that without the help from the speculative community.  And looking at the grain complex, it does appear that speculators are done with the short side of agricultural commodities for now.  Therefore, we could get some sort of short covering rally in cotton similar to that that we've seen for corn and soybeans.  However, I would have to believe that there is so much overhead resistance for this market, any move above .6600 would certainly be short-lived and met with tremendous selling from both merchants and farmers.  We also continue to watch the December 2015 contract and hope that it will inch toward the .6800 to .7000 area, where we would initiate our first round of hedging for next season.  For now, the holding pattern continues...
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