Daily Market Update - September 15, 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           .6788                .6571                 .6584              - .0216            - .1259

Mar 15 Cotton          .6739                .6558                 .6577              - .0166            - .1319

Dec 15 Cotton          .6889                 .6881                 .6875              - .0105            - .1006

Dec 16 Cotton                                                                .6998              - .0105

Dec 14 Corn              3.4350               3.3575              3.4300            + .0450           - 1.0050

Sep 15 Corn              3.7850               3.7150              3.7825            + .0400           - .8475

Nov 14 Soy               9.9450               9.7425              9.8950             + .0425          - 1.4550

Nov 15 Soy               10.0300            9.8450              9.9775              + .0300          - 1.2900

Jul 15 Wheat           5.4075               5.3375              5.3825              - .0075           - 1.0700

Monday's Market Report
Some possible clarification on Chinese policy today sent US cotton prices plummeting as December cotton lost 216 points and settled at .6584, catching many traders by surprise.  While details are sketchy, on the whole it looks like the Chinese government will be paying direct subsidies toward its farmers and not stockpiling cotton for the 2014-15 season.  If true, it will be hard for US cotton to be competitively in the export market at current prices.  While cotton prices were collapsing, grain prices finally put in a higher close as traders assessed the frost/freeze damage from over the weekend.  While damage was said to be pretty minimal, the corn and soybeans markets finished 3-6 cents higher on the day after spending most of the night session once again in losing territory.  Pretty much pick a row crop commodity and they are in the throws of a huge bear market; last week saw a counter trend rally in cotton prices, and we could certainly see one this week for grain prices.  In either event, these are still rallies that need to be sold, as evidenced by cotton's price action today. In the just released crop condition report, cotton, corn, and soybeans were all unchanged from a week ago as all three crops race toward maturity.  With the exception of some possible unwanted rain for Georgia this week on the cotton crop, the weather for the next two weeks across the US growing region looks very good and conducive to larger crops.  Most outside markets enjoyed a quiet but higher day to start this work week, although the NASDAQ was lower as internet stocks had a rough go of it today.
Inside the Cotton Market
After a conflicting set of numbers released by the USDA last Thursday, the market ended last week on a positive note as tighter US stocks had prices at levels not seen since late July (6848 high).  Unfortunately, before many growers took advantage of this move, the market gapped lower today and caught a heavy wave of sell orders just after 8:30 am that sent the market some 200 points lower.  According to sources, this wave of selling hit the market almost immediately following an announcement in China that possibly cleared up what until now had been murky Chinese cotton policy for this marketing year.  While the Chinese futures market has been moving lower for quite some time now foretelling of a bearish policy, the US market over the last month or so has been begrudgingly moving higher as traders focused on a possibly smaller US crop.  I haven't seen the policy in black and white as of yet, but supposedly the Chinese government is going to give its growers a direct subsidy, said to be 13500 yuan for those growers in the Xinjiang province and substantially lower than that for growers in the Eastern provinces.  An additional payment of 6300 yuan could bring a maximum target price of 19800 yuan for those Xinjiang growers.  The crux of all of this without getting into currency exchange rates is that US prices at current levels, and certainly higher will not compete with domestic cotton at these lower prices within China.  Just last week we saw our export report have net cancellations as prices eased a bit higher and our prices were even higher last week, which shouldn't portend a good export number this week either.  In addition, many other countries such as Turkey and Greece already bought a large number of the bales that we expect them to use for the entire year on the initial price break toward .6200.  Other negative factors weighing on the market include beneficial rains for parts of West Texas over the last 10 days and the fact that the USDA once again increased World Carryout on the last WASDE report to a record 106.2 million bales.  Many in the trade believe this is not the last time we will see carryout rise as the US, Chinese, and Pakistani crops are all thought to be bigger than the current guess.  Tomorrow's market action will be very interesting, to say the least.  If the policy announcement in China is as we read it to be, it stands to reason that we could see prices move even lower.  With open interest rising last week as prices moved higher, it is safe to say that there are some weak new longs in the market that will be flushed out with any additional downside pressure.  While I didn't anticipate us taking out the .6202 lows until December was off the board, today's price action will certainly make me revisit that idea.
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