Daily Market Update - September 29, 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            .6287               .6140                .6147               - .0042            - .1696

Mar 15 Cotton           .6225                .6102                .6107              - .0039            - .1789

Dec 15 Cotton            .6485               .6485                 .6410              - .0036           - .1471

Dec 16 Cotton                                                                .6789              - .0057

Dec 14 Corn                3.2650             3.2200             3.2575             + .0275          - 1.2475

Sep 15 Corn                3.6175             3.5800             3.6125             + .0250          - 1.0175

Nov 14 Soy                 9.2450              9.0550            9.2350              + .1325         - 2.1150

Nov 15 Soy                 9.4550              9.2750            9.4450              + .1275         - 1.8225

July 15 Wheat            5.0975              5.0000            5.0850              + .0475         - 1.3675

Monday's Market Report
 While all row crop commodities search for a true bottom, it appears that some may be getting closer than others.  Cotton prices, for the third straight session attempted to rally, but fell under their own weight once again as market settled.  December cotton lost 42 points to close at .6147, while March dropped 39 ticks, settling at .6107.  For now, at least, last week's lows are holding a pretty good level of support for our market.  While the action will be deemed nothing more than short covering, the grain board was green across the screen today.  Soybean futures led the way gaining 12-13 cents across all contracts.  Corn gained 2-3 cents, while wheat was higher by 4-7 cents.  While there remains little doubt that huge crops, ideal weather, and a lack of bullish demand cast a large shadow over these markets, the imminent need to push toward fresh new lows doesn't seem all that real at the moment.  As mentioned last week, at some point with these lower values, the risk simply outweighs the reward for speculative shorts with a sizeable profit on the books.  Crop forecaster Lanworth published corn and soybean yields that were higher than their last update, which was already higher than the USDA estimates.  Most feel this news is already in the market, however.  The stock markets are lower to start the week as more geo-political disruption, this time in Hong Kong, seems to be keeping market participants jittery.  The runaway commodity component continues to be cattle market, which made historic highs once again today.
Inside the Cotton Market
 While we didn't file a report on Friday, today was a carbon copy so we are pretty much getting a two for one here.  Just like on Friday, the market was moderately strong overnight before faltering during the morning session, and closing near lows as the market settled.  The reasoning behind this pattern seems to be due to the current state of affairs in China (shocker, I know!).  Last Thursday, the margins for handling a cotton contract on the Chinese exchanged tripled overnight in an effort to run speculative shorts out of the market, as the government seemingly deemed that they felt cotton prices had gotten too low.  As a result, many of these contracts were liquidated and the Chinese futures market has rallied extensively over the last 2-3 sessions on a huge short-covering rally.  Subsequently, when our ICE cotton market is open along side the Chinese market, we see a large amount of buying on the ICE, driving prices moderately higher.  However, once the Chinese market closes and ours remains open, the negative tone reappears and the market trends lower over the balance of the session.  While this seems negative and the laws of Supply/Demand will ultimately win out, I do take notice when the Chinese government believes that prices over there have simply gotten too low.  We must remember that it was the Chinese government and the Chinese government alone with their ill-fated policy, that kept cotton prices above .8000 here in the US despite the largest world carryout in history.  Ultimately keeping the speculator out of the market is not going to keep prices from going lower if the Chinese indeed follow through with their stated plan of only allowing imports at the WTO minimum level.  However, in the short term,  the shuttering of spec shorts in China,along with a later than normal US crop that the unhedged farmer is not eager to part with, combined with short-term tightness on the part of cotton mills around the world means that we MAY have seen a temporary bottom in prices just above the .6000 level FOR NOW.  Again, I fully expect to see prices in the 50s come mid December unless China does yet another about-face with their cotton policy.  So we still urge growers to get their cotton picked, ginned, classed, and offered as soon as possible.  Also, for the first time in five years, growers are eligible for a LDP or POP payment this week at 106 points.  Some things to remember about the LDP payment.

1) Cotton must be picked, at least in module/roll form, before the grower can qualify and           sign for the LDP.

2) If you have forward contracted cotton, you must sign for your LDP/POP payment before       we invoice the cotton to the buyer or you forego the right to collect the payment.

3) Merchants are going to actively enforce the clause in their contracts whereby cotton must     be invoiced 20 days from the classing date or  to keep growers from speculating on a           larger LDP payment down the road as they need this cotton to fulfill mill obligations.

4) Any LDP payments received will go against the producers $125,000 payment limit.

5) The LDP changes every Thursday afternoon, based on the weekly market average of the      five previous sessions.

6) Growers will go to the FSA office in the county in which the cotton is grown to sign for the      LDP payment.

I'm sure I am missing some potential questions regarding the LDP component, so feel free to call or email me with any questions. 


















 


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