Daily Market Update - November 13, 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           .6078                .5857                .5875              - .0159            - .2021

Dec 15 Cotton            .6501                .6295                .6315              - .0166            - .1566

Dec 16 Cotton                                                                .6489              - .0185

Sept 15 Corn              4.2325              4.1300              4.2100           + .0750            - .4200

Nov 14 Soy                10.6825            10.4475            10.5050          + .0225           - .8450

Nov 15 Soy               10.4575             10.2450            10.3525          + .0925           - .9150

July 15 Wheat          5.7000                5.5800               5.6850           + .0700          - .7675

 

Cotton LDP - 3.43 cents per lb. (starting tomorrow)
Thursday's Market Report
 September 1, 2009.  That was the last time we saw cotton close at the level that we did today. Almost 2000 days ago, that is a long time.  Quickly fading December dropped 221 points, settling below 60 cents for the first time at .5973.  The more important March contract settled at a very ugly .5875, down 159 ticks.  Distant months were just as bad with prices for 2015 and 2016 crops now below .6500 as well.  On the flip side, we saw continued strength in the grain sector again today with corn and wheat leading the charge for a change as opposed to soybeans, although they managed to close higher once again as well.  Corn prices were higher by 6-8 cents, helped by the nearly $3.00/barrel rout in crude oil prices, as ethanol margins improve dramatically and output was reported as the highest since late July.  Wheat prices jumped on the bitter cold weather pushing down across the Plains amid the worry of a possible killing freeze on freshly planted wheat.  Wheat prices jumped by 7-11 cents on the news as temperature readings were as low as minus 15 in parts of Western Nebraska and eastern Colorado.  Soybeans continue swing in big gulps, but managed another firmer close again today.  Nearby January beans (not sure why I'm still quoting November) were higher by 5 3/4 cents, while next year's soybeans were almost a dime higher.  My thoughts on the grain markets from a hedging perspective have been repeated in this space over and over, but the emotional component of the market is now a key part of things.  Growers are being lulled into a false sense of security that the worst of things from a price perspective is now over and there certainly is no reason to forward sell now as prices will continue to rise.  For the umpteenth time, I would be selling some of my 2015 corn and soybean production into this rally JUST IN CASE.  As I mentioned earlier, crude oil prices are getting slammed today, to the tune of down $2.79/barrel, as Saudi Arabia is still showing no signs of cutting back production and until they do, it would appear that the other OPEC countries won't either.  Either way, there isn't going to be a big gasoline shortage anytime soon.  The Dow Jones is set to finish higher for the eighth consecutive session.  It would appear that all is well once again on Wall Street after that big hiccup late last month.
Inside the Cotton Market
 Just not much good to say here, folks.  First off, I was wrong in that we would get a look at export numbers today as they were delayed until tomorrow due to the Veterans Day holiday earlier in the week.  And after today's performance, it would take a report that absolutely nobody sees coming to help get this train back on the track and frankly, even that, probably wouldn't be enough.  Second and third hand news from the Sourcing Summit in Arizona was simply a report of "Everyone is bearish and very little if any business is getting done." Now we have the fact "Fresh five-year lows in cotton!" is going to be printed in every news outlet imaginable after today, and the close is just going to be inviting to speculative interests that basically have no position in cotton at the moment.  I would say that the best thing cotton has going for it is the fact that EVERYONE is now bearish, only that is not the case as many speculative interests have held a long position for several weeks now.  Hindsight is always 20/20 but we said at the time when prices made their last low in mid September that it certainly didn't feel like "THE LOW" and today gave us confirmation of that.  While charts are certainly showing signs of an oversold position, you can bet that any significant bounce will now be sold aggressively going forward.  Another negative aspect of this decline in cotton prices lies with the farmer that was using his CRC crop insurance as somewhat of a Put option.  Unfortunately, that harvest price was set nearly two weeks ago at .6400, so the precipitous fall since then of some 500+ points will not be realized when indemnities are paid out. The only bullish factor out there that I saw today was a plea by the Indian government to their Cotton Association to increase the amount of bales that they will accept into their Minimum Reserve Program in an effort to help the farmers there with their price.  I continue to say that there has yet to be a entity in the world, much less a government entity, that could outrun the laws of Supply and Demand in the long run.  India needs to look no further than to their immediate West to see how fouled up things can get once the government tries to start out-thinking the market.  You know China, that country that is sitting on 60 million bales of cotton that they paid upwards of $1.30/lb and in some cases much more for, while world prices now sit below .5000 per lb.  I would tell you how much money that is but my calculator doesn't have that many zeroes. Actually, I think its upwards of $25 billion by my rough figuring. Anyhow, where do we go from here?  As I mentioned earlier, technically the market is pretty oversold and due for a bounce, but I'm not sure where that bounce originates from.  I don't see how today's close will not attract more new speculative shorts into the market and whether the trade will be there to buy remains a big mystery.  They obviously weren't there today en masse.  With the market moving lower, it will certainly be harder for merchants to pry cotton out of farmer hands.  But as we all know as the market moves lower, the LDP gets larger and we have a full week to have a set-in-stone LDP payment while the market trades five days and five nights a week.  It doesn't take a genius to see or to tell you that the only avenue for selling cotton right now is to sell cotton at a good basis on a day when the market rallies significantly while the LDP is higher for that particular week.  When we were still trading on December, we were able to get several growers some high grades sold that netted them above .7000 with that combination.  Now that we are trading off the lesser valued March, that upside looks to be .6700ish at the moment.  Have your recaps ready and be watching the market close.  My advice would be that when you can get .6500 and higher to sell the cotton, stop the storage and interest, and if you are convinced the market should rally, buy a call option.  If you feel like I do, think about buying the put.  I'm afraid this is going to be a long, drawn-out, bear market that likely takes several years to repair.
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