Daily Market Update - October 7, 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            .6529               .6422                .6521               + .0083           - .1322

Mar 15 Cotton           .6276               .6216                .6257               + .0029           - .1639

Dec 15 Cotton            .6538               .6497                .6535               + .0045           - .1346

Dec 16 Cotton                                                               .6913               + .0045     

Dec 14 Corn               3.4225              3.3050             3.4050             + .0800           - 1.0950

Sep 15 Corn               3.7900              3.6800             3.7800             + .0825           - .8500

Nov 14 Soy                 9.5500              9.3325             9.4075            - .0150            - 1.9425

Nov 15 Soy                 9.7325              9.5475             9.6325            + .0300           - 1.6350

July 15 Wheat            5.3650              5.1875             5.3350            + .1275          - 1.1175

 

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

Tuesday's Market Report
It was a mixed bag in the markets today, but for cotton, corn and wheat we saw follow through buying once again today as these battered and bruised markets attempt to pick themselves up off the floor even in the face of a bumper harvest season.  Cotton prices, once again led by the December contract, were stronger today for the third consecutive session, which seems more like a ten day winning streak given the action of the last four months.  December gained 83 points today, closing at .6521, the highest level since September 17th.  Again, March, May, and July cotton lagged well behind the December contract.  December 2015 cotton closed at .6535, up 45 points.  Out of nowhere, wheat futures led the grain board higher today, exploding for gains of 12-14 cents, with corn futures closely behind gaining 7-8 cents.  Soybean prices couldn't hold on to early gains and finished the day with narrow losses of 1-2 cents in current crop dealings, but gained 2-3 cents on the 2015 crop.  I still believe these recent gains are due to nothing more than speculative short covering but they are certainly a sight for sore eyes nonetheless.  Some fundamental support in the wheat market may be coming from some dryness in the Southern Plains, but that is probably a stretch at best.  The downturn in the ag economy over the last several months continues to ripple through the broader ag economy and today two of the larger companies, Cargill and AGCO, issued weaker results.  I doubt those two companies specifically had anything to do with it, but the Dow Jones was down another 272 points today.  Europe (we haven't heard about those guys in a while) was deemed as the main worrying point with troublesome German industrial output being a specific target.
Inside the Cotton Market
While we were higher again today and I am certainly glad of that, today's action was about half of yesterday; half the gain, half the volume, which leads me to wonder if the rally isn't running out of steam.  I am hearing that the bad weather in the Mid-South, specifically areas of Arkansas, Tennessee, and Northern Mississippi negatively affected some outstanding yielding fields and lingering showers along with a dreary forecast have growers and buyers worried about quality going forward.  Along with running out weak speculative shorts in the December contract, this adverse weather is almost certainly the reason for this 400 point rally we have seen in over the last 3-4 days.  That said, the market closed today above all short term moving averages and could attract buying that could push prices toward the recent September highs of .6848.  The real test of the direction of the market will come on Friday, when we get the monthly numbers from the USDA and we will look for two numbers most importantly: the size of the US crop and the projected ending stocks outside of China.  Personally, I just can't see this market running away when I see how weak the March and May contracts are behaving on this "rally".  What is going to be there to lead us higher once the December does all it can do?  Not much, I suspect.  And, while I'm not there to see it, I just don't see the crop getting any smaller and in fact, I think it might be getting bigger.  The quality may certainly be getting clipped, but that can always be rectified in the basis the buyer pays for the higher grading cotton.  I think this rally is an opportunity for growers to sell additional cotton from today's close towards potentially .6900.  The one thing this rally is doing that is detrimental to those growers that have already priced the majority of their cotton is cutting into their CRC crop insurance payments.  It may not be politically correct to say it, but for those that have already priced their cotton, they need for the market to be plummeting right now if they have the Harvest Price Option.  That Harvest Price Option is determined by taking the average closing price of the December settlement from October 1 through October 31.  My guess is that price will ultimately shake out somewhere in the 64-66 range versus the initial Spring guarantee of 78 cents.  So for now, we will watch the weather in US cotton growing regions: 1) potential frost dates in the Southwest, 2) storms/cloudy weather in the Mid-South, 3) Gulf activity for the Southeast, to extend the market higher than the current .6900 ceiling in December that I am projecting.  I give this a less than 15% chance of happening so I would have orders in between here and .6900 as I mentioned earlier.  Please give me a call to discuss these potential orders.
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