Daily Market Update - December 17, 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           .6090                .5949               .6065               + .0087            - .1831

Dec 15 Cotton            .6440                .6321               .6443               + .0092           - .1400

Dec 16 Cotton                                                               .6677               + .0095

Sep 15 Corn                4.2725              4.2100            4.2525             + .0125            - .3775

Nov 15 Soy                 10.1500            9.9625            10.0950           + .0750            - 1.1725

July 15 Wheat            6.4800              6.1950             6.4675            + .2075            + .0150

 

Cotton LDP (through Thursday) - 5.55 cents  - Estimated 4.43 cents next week
Wednesday's Market Report
We saw a banner day for most all commodities and equities after the Federal Reserve's remarks were certainly less hawkish than expected as free money makes everyone happy once again.  Cotton, which had closed terribly on Tuesday and was hanging right around the 20-day moving average, zoomed some 150 points in the last 40 minutes of trading and settled 87 points higher in March at .6065.  Next year's December contract closed even stronger at .6443, up 92.  In the grain pit is was a case of the strong, stronger, and strongest with regard to corn, soybeans, and wheat.  Corn was fractionally higher, soybeans moderately higher, and wheat prices were high enough to edge back in the black FOR THE YEAR on the July 2015 contract.  Like cotton, the news from the Fed right around the time the markets were getting ready to close added most of the froth to the trade higher.  Corn prices continue to be buoyed by record ethanol production in the face of crumbling crude oil prices.  China has also finally approved the MIR162 trait that has been used as a reason to reject US shipments of corn into China.  Soybean prices made a pretty good rebound from intra-day losses and managed to finish with a positive close.  Out of the big three in grain, I still believe it is soybeans that have the most downside potential over the long haul.  The most dynamic of the three lately is certainly the wheat market, which gained more than twenty cents today.  At 6.46 in July wheat, we are now back to levels not seen since early July.  While this market has certainly broken out to the upside on both fundamental and technical buying, I would have orders working between 6.52 and 6.61 to price some of next year's wheat as it looks like some technical resistance could be just above this market.  The only losers today were the gold and crude markets.  Losses in gold were to be expected with the easy money policy, but crude oil had a roller coaster ride that saw the front month contract $2.00 higher and $2.00 lower in the same session, and finished narrowly lower.  I would assume that if you were looking to hedge some energy savings, this would be a pretty good place to start.  The stock markets certainly took a liking to the news from the Federal Reserve as the Dow gained 1.7% or almost 300 points, erasing about half of their December losses and ensuring that traders receive a nice Christmas bonus. 
Inside the Cotton Market
 While the gains in cotton look impressive on the screen, it means very little in the grand scheme of things.  Cotton prices remain wedged between the 40-day moving average (.6069) on the top and the 20-day moving average (.5974) on the bottom.  That sums up just how lethargically cotton has been trading amid less than stellar daily volume.   I mentioned on Monday that it appears that many traders are already taking a holiday approach to the cotton market and today was no exception. Early on, it appeared as we would take a look at some fresh lows as cotton traded tenuously above contract lows by anywhere from 30-100 points depending on the contract you were looking toward.  Bearish news out of India and the rumors that the government there could be in motion to dump as many as 2 million bales of cotton into China at a price that would equate to 3-4 cents lower than the current price here at home did the market no favors.  However the market was unable to find new sellers and thusly new lows.  It certainly didn't take much short-covering buying to zoom the market some 100-130 points higher as surrounding markets were surging near cotton's close.  The only thing today's higher close really ensured was a higher world price for which we will calculate the LDP for next week.  I would expect to see the LDP drop to somewhere in the neighborhood of 400 to 420 points next week, which would be a drop of more than a penny.  I have been in touch with several of you about locking in the LDP rate before it changes tomorrow and for those that I haven't please give me a call early tomorrow if you don't hear from me first.  As I said on Monday, if we could see the market rally further tomorrow, the combination of a market around 6100 or preferably higher combined with the short one-day window of a 555 point LDP should entice some growers to let go of their cotton. With today's close, it would make sense that cotton will make yet another attempt to push through and close above .6100 as it has tried to do multiple times in the past couple of week.  But as we all know, the cotton market rarely moves as one would expect it to. Long story short, this market is on a continued highway to nowhere.  Take advantage of the market+basis+LDP when affordable and cast your eye toward 2015, in my less than expert opinion.
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