Daily Market Update - November 10, 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

Mar 15 Cotton .6370 .6107 .6132 - .0129 - .1764

Dec 15 Cotton .6695 .6550 .6581 - .0050 - .1300

Dec 16 Cotton .6771 - .0054

Sep 15 Corn 4.1300 4.0050 4.0525 + .0225 - .5775

Nov 14 Soy 10.6050 10.2425 10.2750 - .1275 - 1.0750

Nov 15 Soy 10.3475 10.0375 10.1050 - .0825 - 1.1625

July 15 Wheat 5.4725 5.3675 5.4150 + .0125 - 1.0375

Cotton LDP payment (through Thursday) - 2.63 cents/lb

Cotton Harvest Price Option Insurance Price - .6400

Monday's Market Report

While we haven't escaped the tedious range in cotton prices yet, the shenanigans that started late Friday spilled over today on USDA report day and cotton, once up by triple digits, finished the day with triple digit losses. December cotton , which we have removed from the above quotes as March has taken the open interest lead and all cash business, lost 153 points on the day and closed at .6243. That same December contract was up nearly 200 points on the day at around 11:00 am eastern. The more important (for growers) March contract was down 129 points at .6132. The further out the board you go, the more the losses were contained as we are sure to see a building of carry once December fades to black. The grains were mixed on this report day with corn and wheat finishing the day slightly positive and soybean prices seeing moderate losses while closing weakly. The data for the grains would have to be deemed as friendly for prices today, but it would appear that the news was already in the markets looking at today's settlements. The corn crop was unexpectedly reduced to 173.4 bushels per acre (some 2 bushels lower than the average trade guess), thus lowering ending stocks to slightly above 2 billion bushels. While the soybean crop was bumped slightly to 47.5 bushels per acre, an increase in US soybean exports essentially ate up all of this new production. The news for wheat was of minimal importance, one way or the other. The biggest thing to take out of the report, in my opinion, was the lack of follow through to the upside for soybeans, once the report was issued. Once up double-digits before the release, the weak close now leaves the potential for a "double-top" in soybeans if you are so inclined to believe in that hocus-pocus. As for me, I've been wrong about soybeans more times than I care to remember. However, at the end of the day, I still see nothing bullish about a 450 million bushel carryout, good weather in South America, and the promise of a sharp increase in soybean acreage in the US next year. I'm still a seller of soy above $10.00 for these reasons. Outside markets have been generally quiet today with the exception of crude oil, which performed much like soybeans in that after an early strong performance, prices closed very weakly, down 1.43/barrel. The stock markets were slightly higher to start this work week.

Inside the Cotton Market

As I mentioned earlier, cotton price action got a little funky toward the close on Friday as prices moved more than 100 points higher in the last 5 minutes of trading as December options expired after languishing mostly lower for the entire session. That strong feeling was built upon by newly-minted speculative longs as the market gained positive traction this morning, seemingly I presume in anticipation of a bullish USDA Supply & Demand report. The fact that the speculator has turned his net position back to long after a couple of months of being net short has certainly been the impetus for stopping the cotton market's freefall. By 11:00 am, December was higher by 180 points and March was up more than 100 points and I was really scratching my head as I just couldn't see any potential bullish surprises on tap from the USDA. When the report was issued at noon, there really wasn't a whole lot in there. The US crop was raised slightly from 16.3 to 16.4 million bales while exports were left alone. Therefore a small net increase in ending stocks certainly didn't give the johnny-come-lately bulls any ammunition to defend their position. Almost as soon as the numbers were released, the market started giving up gains, and it was a steady descent toward the 2:15 pm close. The volume of contracts traded on the day was massive at more than 75,000 (if I'm reading my screen correctly), almost the large portion of those were simply December/March switches. Still, it will be very interest to see what happens with both December and March open interest tomorrow after such a huge volume day. As for the report, I personally think this is just the first of several times that the USDA will have to increase the size of the US cotton crop. For instance, they left the Georgia crop at an average of 911 pounds/acre and I'm pretty convinced that number will be bigger. I haven't talked to a farmer yet that isn't making the best irrigated cotton that he has in many years, if not ever. While some dry land areas of the state were very disappointing, there were quite a few that were surprisingly good as well. I say all of this because I don't believe that Georgia is the only area in which this is happening. I think that 16.3 million bale crop will ultimately become a 16.9 to 17.1 million bale crop and that we will eventually be forced to take prices low enough to stimulate export demand that will slough off this extra cotton. Combine that hypothesis with the fact that these speculators now have a long position with very little chance for a profit as I see it and we could see further pressure on prices going forward. All of that said, the market, despite the fireworks in both directions of the last two sessions, remains range bound between 60 and 65 cents and more narrowly between 62 and 64 cents. I still think we ultimately see price break for the 50s; I'm just not sure when and what triggers that move.