Daily Market Update - October 6, 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            .6499              .6232                .6438               + .0191           - .1405

Mar 15 Cotton             .6237             .6100                .6228               + .0118           - .1668

Dec 15 Cotton             .6500              .6375                .6490               + .0120          - .1391

Dec 16 Cotton                                                               .6868               + .0120 

Dec 14 Corn                 3.3275            3.2325             3.3250             + .0925           - 1.1775

Sep 15 Corn                 3.7000             3.6075            3.6975             + .0900           - .9325

Nov 14 Soy                   9.4300            9.1225             9.4225             + .3000           - 1.9275

Nov 15 Soy                   9.6150            9.3400             9.6025             + .2625           - 1.6650

July 15 Wheat              5.2200            5.1350             5.2075             + .0700           - 1.2450

 

Cotton LDP payment (valid through Thursday) - 2.73 cents/lb

Monday's Market Report
Are the lows in ?!?!?!  Well, maybe not for cotton in the long term, but it might be a valid question for the grains as prices exploded higher today and finished the session on the highs amid short covering as weather concerns continue to delay harvest and a sharp break in the dollar fueled widespread buying amid heavy volume. Widespread drought in Brazil, which has coffee prices on fire, is also lending support to corn and soybean prices.  Cotton prices also jumped, led by the December contract which gained 191 points, settling at .6438, for its biggest one-day gain on a percentage basis since March 25th.  March cotton was higher by 118 points at .6228.  The grain complex was led higher by soybeans, which got stronger as the session wore on and closed with gains of 30 cents at 9.42 in the November contract.  November 2015 beans gained 26 cents at 9.60 and I would would like to add hedges there on any further strength as I anticipate increased plantings next year.  Corn futures were higher by 8-10 cents across the board, while wheat prices gained 5-7 cents.  Throwing in gains late last week and it appears for now that $9.00 was about as low as soybeans needed to go, while $5.00 held wheat in check and corn prices never made it to $3.00 on this go round.  While some pundits are sure to ring the bell that the "Lows Are In !!", I think I will wait until after Friday's Supply and Demand report to make my call.  If we can get another round of bearish yield numbers and still close the grain markets higher on Friday, I might be ready to join that crowd.  For now, I just think this is a short covering rally that will move us into a sideways pattern until the glut of harvest makes us roll over one last time.   As I mentioned earlier, the dollar index got pounded today and it got even worse after I started typing this report, now down almost 1000 points.  Stock markets have been generally quiet on this Monday after last week's tremendously volatile price action.
Inside the Cotton Market
 While we didn't file a report last Friday, the market finished last week on a strong note and picked up where it left off today.  Aside from some possible crop loss due to a strong storm in the Mid-South late last week, I don't know of any fundamental reasoning for the sharp move higher in prices but we will gladly take it nonetheless.  Perhaps some of the markets's strength on Friday and today could be attributed to business consumed on 5 year price lows coinciding with the ICA meeting last week in Dubai, but that's simply conjecture on my part. A Reuters story showing that speculators now have their largest net short position in cotton since 2007 and increased that position by 55% in the last week of September probably led to some covering as well.  I'm sure the specs make a ton of money trading commodities, but it sure does seem like they are awfully late to the party most of the time.  As I have mentioned repeatedly in past updates, if we have any continued strength in the market, it will be in the December contract and that showed true once again today.  The December/March spread traded as wide as 273 points over before settling out at 210.  A short term tightness does indeed exist and that is reflected in that inversion and the outright December. I think much of the strength in the overall market today was due to some weak shorts that have no business in December being forced out.  Volume was strong at more than 30,000 contracts and it will be interesting to see how open interest shakes out in the morning. Going forward, we could see further strength in the December market, as shorts are forced out, as very tight certificated stocks and mills that are running hand to mouth keep a firm tone under nearby prices.  Merchants that haven't already moved their short hedges to March or May are now certainly in a bind with the market at a 200 point inversion once again.  As I've mentioned before, those growers that can get their cotton harvested, ginned, and in front of buyers the fastest will get the most for their unhedged cotton this year.  To those buyers out there reading this letter, I can assure you that our warehouse will do whatever it takes within reason to get your orders out as quickly as you need it, as well.  And at the risk of sounding like a broken record, I see absolutely no reason for growers to hold cotton through the end of the year and price it off the lesser valued March, May or July contracts as I still believe prices will move lower in that time frame.  I mentioned earlier than round numbers may have indeed held the declines for grain prices at 9, 5, and 3 for soybeans, wheat and corn respectively.  Maybe the 6 handle will hold prices for cotton in the short term as December shakes some cotton from producer hands, but ultimately and unfortunately, I think lower prices are going to be a reality.  One last note, if this rally does drag the back of the board higher and we can see December 2015 move into the 6800 - 7000 range (closed at 6490 today), it may be worth a shot to hold you nose and close your eyes and price some of next year's production if you intend to plant some cotton next year.  Of course, everyone is telling me they won't be planting any cotton next year.  I guess there will be 2 million acres of peanuts in Georgia next year !!
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