Daily Market Update - September 30, 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            .6207                .6101               .6137               - .0010            - .1706

Mar 15 Cotton           .6143                .6029               .6045               - .0062            - .1845

Dec 15 Cotton            .6418                .6388               .6366               - .0044            - .1515

Dec 16 Cotton                                                               .6744               - .0045            

Dec 14 Corn                3.2625             3.1950             3.2075             - .0500            - 1.2950

Sep 15 Corn                3.6150             3.5600             3.5675             - .0450            - 1.0625

Nov 14 Soy                 9.3000             9.0975             9.1325              - .1025           - 2.2175

Nov 15 Soy                 9.5175             9.3175             9.3750              - .0700           - 1.8925

July 15 Wheat            5.0925             4.9775            5.0450               - .0400           - 1.4075

Tuesday's Market Report
 I know everyone gets tired of reading the same ole negative song and dance, and plenty have probably stopped doing so but it was another sea of red numbers for agricultural commodities today.  Despite my contention yesterday that cotton prices may have found an interim bottom, the last day of the 3rd quarter just brought about more selling and prices settled on new low closes for the move.  Most of the losses were in the deferred months of March, May, and July and not so much for the December contract.  December lost 10 points, settling at .6137, while March closed at .6045, down 62.  The grain complex was lower today, led again by soybeans despite a much tighter quarterly stocks number.  November soybeans were down a dime despite grain stocks at 92 million bushels on September 1st as opposed to USDA carryout of 130 million.  There weren't many surprises for corn and wheat but they were lower nonetheless.  Corn futures were lower by 3-5 cents and wheat by 2-4 cents.  July 2015 wheat slipped below $5.00 at one point, but managed to rally back above there by the close.  I know that I've said it before, but if I were giving any advice at the moment, it would be to sell November 2015 soybeans.  At 9.37/bushel, it is the only row crop on the board for 2015 that will allow a grower to pencil a profit, aside from the target price on peanuts I would assume.  While I usually don't disagree much with Richard Brock when it comes to grains, I believe we are going to see a huge jump in soybean acreage next year if prices remain static. While corn prices probably have limited downside, I could see soybeans really taking a tumble with strong yields this fall and big acreage next spring.  Again, all commodity prices are suffering somewhat because of the strong US dollar, which was higher once again today.  At 8630, we are seeing a greenback that is stronger than at any point since June of 2010.  Despite the ongoing tensions in Hong Kong, most equity markets have been rather stable on this Tuesday.
Inside the Cotton Market
 While we have used strength in the ZCE platform in China for intra-session strength the past couple of days, the Chinese market was only fractionally higher last night and as a result, we didn't see much strength here at home.  While volume wasn't all that heavy, prices in March and May were on the defensive for the majority of the session.  Yesterday's assessment from the USDA in that the US crop improved over the last week probably didn't help matters much.  I know people will not believe me or might just not want to believe me, but I still contend the crop around here is better than most think as well.  Early,  very early yields on the very small bit that we have ginned indicate as much.  Of course, this overcast, cloudy, wet weather isn't doing us any favors going forward.  Back to the market...it was truly a dreadful 3rd quarter of the calendar year for cotton and index funds HAVE to be growing tired of the terrible performance that they are seeing from the long side of cotton.  On a continuous chart, as bad as the 2nd quarter was when cotton lost 1431 points, the 3rd quarter was even worse, dropping 1725 points.  Since April 1st, when spot cotton was trading 9352, we have lost an unbelievable 3156 points.  On the December contract alone, the loss has been 1850 points or $92.50 per bale.  On a projected 17 million bale crop in the US, that is more than 1.5 billion dollars that will be felt throughout the economy as a result in the devaluation of cotton over the last six months.  Is there any bright spot out there, you say?  If there is, I just don't see it.  I do believe that the December contract will hold firmer than the March, May, or July contracts so there may be some solace in that for those that haven't priced any cotton and we saw evidence of that today as the Dec/Mar spread widened once again.  Again, I think unless we are totally wrong about a) the size of the crop, or b) more importantly about Chinese policy going forward, things are unfortunately going to get worse before they get better.  I believe there is absolutely no reason whatsoever for a grower to hold cotton through this inverse and into the next calendar year and every day that the spread widens and the overall market goes lower, that belief is reinforced.

One item I forgot to include yesterday when mentioning LDPs, if you market your cotton through a cooperative like Staplcotn, Autauga, or ProCot, they will handle your LDP for you just as they have done so in the past.  The only caveat this year as opposed to the last time that the LDP was in effect is that the payment will be going against the producer's $125,000 payment limit. So the cooperative will have to effectively manage this situation.  And as it stands today, the LDP payment is forecast to grow from 106 points this week to 229 points next week.

Lastly, I am linking a letter issued by the National Cotton Council on how growers, ginners, and warehouses can help prevent contamination in our cotton throughout the industry chain.  Over the years, the US has enjoyed a stellar reputation of having some of the cleanest, contamination-free cotton in the world and has been the preferred choice of importers around the world.  For the last few seasons, this reputation has taken a hit for a variety of reasons that we can all help minimize.  Please take a minute to click and read the letter below to help in this campaign as we try to keep US cotton the preferred cotton of choice around the globe. 

 NCC Contamination Letter
















 


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