Daily Market Update - September 9, 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           .6587                .6443                .6579               + .0074           - .1264

Mar 15 Cotton          .6549                .6417                .6544               + .0071           - .1352

Dec 15 Cotton           .6842                .6767                .6844               + .0044           - .1037

Dec 16 Cotton                                                               .6987               + .0044

Dec 14 Corn               3.4825              3.4300             3.4425             - .0400            - .9925

Sep 15 Corn               3.8400              3.7950             3.8025             - .0400            - .8275

Nov 14 Soy                10.0875            9. 9200            9.9275             - .1575            - 1.4225

Nov 15 Soy                10.2075            10.0550          10.0625            - .1400            - 1.2050

July 15 Wheat            5.7025              5.6200             5.6450             - .0750            - .8075      

 

Tuesday's Market Report
 I know I have been very sporadic with this report, but if you are tuning in just for the cotton market report, you really haven't missed much of anything.  For now, the market doesn't want to push much below .6400 and attracts large scale selling in the .6750 range.  As evidenced by the .6570 close today, you can see we settled right in the heart of that range.  The market was quiet nearly all day before a flurry of late buying caused December to finish with a gain of 65 points.  The news is not nearly as boring and is downright depressing for grain prices.  Once again today, we scored new lows in corn, soybeans, and wheat prices.  Prices had gained on Friday and into yesterday morning on the idea of an early freeze later this week for the Northernmost grain producing states.  However, with each and every forecast, this chance is lessening, and with each and every forecast, we see another wave of speculative selling.  Corn lost 3-4 cents today, soybeans 15-17 cents, and wheat 6-8 cents.  I have long suspected that $10.00 would not hold soybeans and today we closed below this benchmark area for the first time in the November 14 contract.  While September beans are still considered the spot contract and are trading above $10.00, this is the first time the most liquid contract of soybeans has been below $10.00 in four years.  The Soybean bear market is now quickly catching up the cotton, corn, and wheat bears.  Early yield ideas out of the Mid-South for corn and soybeans are said to be those of record numbers and the farmer remains the BIG LONG in the market as most of these crops are not sold.  Unfortunately, I do not see these markets turning around in a meaningful way for quite some time and likely not until a potential crop problem early next Summer at the earliest.  Commodity values are getting no help from the US Dollar Index as it continues to make new highs nearly every day as the US Federal Reserve determines the best way to inch interest rates higher and control inflation, while the European countries are headed toward the recent US policy of bond buying and money expansion.  A large contraction in the Japanese economy did no favors for Greenback bears either.  The one market that I continue to get proven wrong on is the cattle market, which made another new historical high today.  Feeder cattle are now bringing nearly $2.30 per pound while fat cattle are fetching more than $1.60 per pound.  While I keep thinking that "no buildings rise to the stars", it does seem it will be some time before beef prices move lower as high corn prices combined with extensive drought conditions out West have thinned herds to historic lows and I still see no shortage of people in steakhouses.  I also am not looking forward to the bill for those steaks that we will be serving Thursday night at our grower meeting!  All of that said, one of these days, not now, but one of these days a short position in the cattle market will be a very profitable one.
Inside the Cotton Market
 As mentioned earlier, up until around 2:10 pm, today was one of the more lackluster trading sessions in recent memory.  And might I add, there has been a long list of lackluster trading sessions in recent memory.  A late surge of buying, which is advertised as "on the close" buying each and every day did push prices on the session highs, but really accomplished little more than that.  The market is really waiting to take its next cue from the Supply/Demand report that will be issued on Thursday.  More on that in a bit.  In five years of filing this report, I don't think I've ever mentioned the October cotton contract.  So today will be a first of sorts.  The October cotton contract has always been known as a bastard contract, one that was originally added to the board to give the South Texas crop some liquidity as it was the first cotton harvested and bridged the gap from old crop prices to new crop prices.  While in theory, it seemed like a good idea to add the contract, the truth is that it has hardly been used at all.  For instance, as the lead contract right now, the October had 231 open contracts (23,100 bale equivalent), while the most active December has 111,732 open contracts (11,173,200 bale equivalent).  Obviously, most people, even in those in trade rarely give a glancing look to the October contract.  However, today's action in the October contract lends support to the idea mentioned in our last correspondence of a strengthening inversion in the short term; at least until a decent number of bales fills the pipeline.  The October contract settled 122 points higher today and is now trading at a 200 point premium to its December counterpart.  It would appear, that while there will probably only be a few thousand bales of open interest in October when the delivery period commences in a couple of weeks, somebody is going to be ready and willing to receive them.  As I said in the last update, I think this (outside of bullish policy announcement out of China) is the only bullish feature I can see in the cotton market.  Many mills are running with very low inventories as they wait for lower prices and new crop bales.  The early bird is going to get the worm this year if they have quantity and quality in their lint pounds.  As far as the USDA report goes, I think most are looking for a reduction in the US crop, but if that occurs, we will likely see a reduction in exports to match.  I don't look for much of a market reaction in either direction based on US numbers.  I could see the crop being reduced from 17.5 to 17.0 or perhaps even 16.8 million bales, but a 500,000 bale reduction in exports could be in the cards as well.  In the world balance sheet, I've given up guessing what will happen there on a monthly basis, although everyone I talk to seems to think the Indian crop will ultimately be bigger than the one currently on file in Washington.  The fact of the matter is that for the 4th straight year, we will grow more cotton than we will spin.  And there is simply no way to put a positive price spin on that fact.  My advice remains "Sell your cotton as quickly as you can get it ginned, classed, and offered on" and I happen to know a place that I believe can do that as quickly as anyone! 

A reminder that we will have our annual customer meeting and dinner on Thursday night at the Dawson Country Club beginning at 6:30 pm.  For those interested, we will meet at the gin between 5:30 and 6:00 beforehand to tour the revamped gin facility.  We invite all merchant and cooperative contacts, banking representatives, and other McCleskey Cotton vendors to attend this meeting along with our customers and potential customers.  
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