Daily Market Update - October 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            .6493               .6312                .6394              - .0095             - .1449

Mar 15 Cotton           .6278                .6138               .6227              - .0046             - .1669

Dec 15 Cotton            .6541               .6480                .6522              - .0023            - .1359

Dec 16 Cotton                                                               .6900              - .0023

Dec 14 Corn               3.4800             3.4075              3.4475            + .0150           - 1.0575

Sep 15 Corn               3.8475             3.7825              3.8150            + .0075           - 0.8150

Nov 14 Soy                 9.4500             9.3250             9.4200             + .0700           - 1.9300

Nov 15 Soy                 9.6725             9.5600             9.6400             + .0450           - 1.6275

July 15 Wheat           5.3450             5.1825             5.1950              - .1450           - 1.2575

 

Cotton LDP payment (est. beginning tomorrow) -    2.29 cents/lb (down from 2.73)

 
Thursday's Market Report
 It seems it has been a week of whiplash for all markets, with the stock markets being the chief recipient as wild swings of volatility leave traders with a bit of a queasy stomach as they head toward the weekend.  Agricultural commodity traders are kindly in the same boat as they head into a key USDA Supply/Demand report tomorrow with prices trying to bounce off significant long-term lows amid uncertainty of weather, acreage, and demand.  Cotton prices participated in this about face action today as after several days of advances, the market moved lower.  Thankfully however, we were able to cut sharp losses significantly into the close, especially in March.  December cotton lost 95 points, closing at .6394, while March settled at .6227, down 46.  Grain prices were widely mixed today as traders girded for tomorrow's big report while also watching the weekend weather forecast.  Soybeans were moderately higher, corn action was negligible, and wheat prices were hammered lower on Thursday.  Export sales were better than expected for both corn and soybeans, while wheat sales were disappointing after the recent price advance.  Corn prices were able to post a 7th consecutive day of price advances on the news.  Torrential rains and possible flooding for Iowa, Missouri, and parts of Illinois could also further delay the corn and soybean harvest over the next several days.  Another bullet in the bulls gun is the possibility in tomorrow's USDA report that acreage of both corn and soybeans could be significantly reduced as USDA and FSA have disagreed on acres for months now.  What isn't in dispute is the huge yields of both corn and soybeans that are in the fields and ultimately, those yields are going to cap any significant price advances in my opinion.  The stock market, as I mentioned earlier, has become a virtual roller coaster.  The Dow Jones was up 280 point yesterday and we have wiped out that gain so far today with interest.  Concerns about the European economy and the ending of the Bond Purchase program here in the States seem to be leading the negative sentiment.
Inside the Cotton Market
 As we mentioned on Tuesday, it felt like the recent rally could be running out of steam when both the gains and the volume were cut in half.  That feeling became a reality today when Chinese markets reopened after one of their dozen's of holidays came to a close and their markets opened lower and then we saw a less than desirable export report here at home at 8:30 am EST.  The December market plunged to losses of nearly 175 while March was down 135 shortly thereafter.  The export report showed net sales of only 68,000 bales during a time when prices were languishing between 61 and 63 cents so common sense would tell us that we probably weren't selling a whole lot of bales when prices bumped up above 65 cents earlier this week.  We also saw some cancellations in this week's report which are never a good thing.  But, as I mentioned earlier, the market did rebound by a pretty good measure into the close, and we will now wait on the numbers that the USDA will give us tomorrow at noon.  As mentioned in previous letters, the keys we will be watching for are a) to see if the agency will take the Chinese at their word and reduce our expected exports into China during this marketing year, b) what they do with the US crop, and c) adjustments to the Indian/Chinese crops.  While I personally believe that both stocks outside of China and the US crop will ultimately GO UP from current projections, it remains to be seen if the USDA will make those changes in this report.  If I am correct in that guess, prices should indeed go lower over time.  In the short term, marketing the cotton crop is a really tough call.  We put in a pretty big slug of GTC orders for growers from .6575 to .6900 on Tuesday afternoon after the market had moved higher and closed above most short-term moving averages.  .6900 was the best-case scenario, in my opinion.  Of course, with the close of the last two sessions, we haven't been filled on any of those orders.  Now, as we sit back here at .6400, there really isn't anything to do because the government essentially provides you with a free put option via the LDP payment.  If the market moves lower, the LDP gets bigger, virtually point for point.  Therefore, I believe over the next 6-8 weeks, it will be imperative for the grower and the ginner to be very timely in using the one-week window that the USDA gives us with the LDP.  When you can use the combination of a high basis offer on a recap, combined with an uptick in the market on a week when the LDP is already set at a generous rate, go ahead and exercise that combination.
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