Ag Market Update - September 18, 2015

Ag Market Update - September 18, 2015

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 15 Cotton .6248 .6040 .6055 - .0185 - .0387

Dec 16 Cotton .6200 .6105 .6117 - .0090 - .0461

Dec 17 Cotton .6360 +.0036

Dec 15 Corn 3.8250 3.7650 3.7750 - .0225 - .4350

Sep 16 Corn 3.9925 3.9475 3.9575 - .0125 - .3225

Nov 15 Soy 8.8650 8.6650 8.6850 - .1600 - 1.3700

Nov 16 Soy 8.8400 8.6950 8.7025 - .1275 - 1.2175

July 16 Wheat 5.0400 4.9675 5.0225 + .0475 - .9475

Today's Market Report

Well maybe a dull market was better than we thought....cotton futures took the obvious path of least resistance today and tumbled some 185 points in the December contract, settling at .6055, a new contract low. On a continuing basis, today's settlement is the lowest since March 18th (.5983). Everything with the exception of December 2017 cotton (zero open interest), wheat futures (been beat worse than a redheaded stepchild), and gold (obvious safe haven), nearly all other commodities are lower to end the week as well. However, I still can't come up with a specific reason TODAY for cotton to lead the charge lower. Soybeans finished the day down 15-16 cents and have all but negated the goodwill achieved earlier in the week, while corn was more subdued, down only 1-2 cents. Interior bids for soybeans are reported to be weak, while early yields are coming in on the upper end of expectations. As mentioned yesterday, weather conditions for corn and soybeans continues to be rather benign and very little is out there to spark prices higher. Crude oil participated in the general selloff today, down roughly $2.00 at the time of this writing, trading below $45.00. The stock markets have their lips poked out and are down about 1.5%, as one would assume at the decision of the Federal Reserve has them irritable. While one would expect the maintain of interest rates at or near 0% would be pleasing to the markets, the comments about the worried nature of the global economy seem to be leading the charge today. All in all, it's been a rough go today, and I would bet that the stock indexes to have a rough last 90 minutes before the close. More than one trader will be looking for a nearby watering hole at the end of today's trading.

Inside the Cotton Market

Today is a prime example of why they call it a FUTURES market, I would argue. For weeks now, I have indicated and surmised that cotton prices would likely move lower as the size of the crop was revealed and selling pressure commenced. Well, very little of the crop has been taken off with virtually no selling pressure from farmers, yet the market still decided today to take that move lower. We spoke yesterday of the lackluster demand for cotton and along with the weakness in the outside markets, I presume that had something to do with us moving lower today. Once the market hit a pocket of stops at the old contract low (.6120), it was Katy Bar the Door. Volume was strong at more than 37,000 contracts and it should be pretty clear now that the bears are in full control of our market as of the close today. Technically, aside from that continuation low at .5983 I mentioned earlier, there really is no support for this market until the .5700 area. Not much more to say about it, the settlements above say it all. At the end of the day, we have got to do something to improve the demand for cotton. There is little doubt that the Chinese helped dig this hole by paying far above market price for cotton for three or four years, artificially boosting prices for cotton farmers around the globe while at the same time destroying cotton demand from consumers around the same globe. We can sit around and blame China if we want to, but I can tell you who isn't going to do one single thing to improve cotton demand: China. That effort is going to have to come from right here in the United States, the undisputed leader when it comes to trade and promotion of cotton; somehow cotton has got to become "cool" again. We can't have global population continue to soar while cotton demand flat-lines or decreases while governments around the world subsidize farmers to plant more and more cotton. With crude oil prices continuing to plummet, competition from synthetics will only get stronger. But for now, the purchase managers at the mills are totally in control of our market. The US farmer hasn't hardly sold a single bale of cotton forward and the harvest is upon us. Most in the trade think that we will have a very ample supply of cotton this fall and unless we get the El Ninoiest of El Nino's, I just don't see anything out there to boost this market markedly higher. Without studying further, I would have to say that any rallies back toward .6300 should probably be sold. If the US crop does come in at 14.5 million bales or better (my uneducated estimate), the US loan price of .5200 is ultimately probably achievable to the downside. For those of you with cotton sold and revenue insurance, and STAX protection in place, it may not be the politically correct thing to say, but along with a bumper crop, that is exactly what you want to happen in the next 60 days.