Daily Market Update - October 15, 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            .6446               .6329                .6371               - .0045            - .1472

Mar 15 Cotton           .6241               .6120                .6177               - .0028            - .1719

Dec 15 Cotton            .6540               .6491                .6507               - .0056           - .1374

Dec 16 Cotton                                                               .6873               - .0056 

Dec 14 Corn                3.5825             3.4650             3.4750             - .0950           - 1.0275

Sept 15 Corn               3.9400             3.8325             3.8400            - .0925            - .7900

Nov 14 Soy                  9.7850             9.5075             9.5250            - .1225            - 1.8250

Nov 15 Soy                  9.9200             9.6750             9.6925            - .1200            - 1.5750

July 15 Wheat             5.4225            5.2850             5.3225             - .0350           - 1.1300

   

Cotton LDP payment (through Thursday) -    2.29 cents/lb 

 
Wednesday's Market Report
 It's been a while since we led off this section with a nod to the macro-economy but due the fact that the Dow Jones, at one time was down almost 500 points today, it seems like a good place to start.  Equities have since cut their losses by more than half as the Federal Reserve rides in once again to save the day but the fact that the world economy is once again looking mighty sick is still weighing on the market and that is even before we get to the worsening Ebola situation.  Markets slipped to levels not seen since April as investors pulled money out of the market in droves as economies such as Germany, China, and Japan continue to produce economic data that suggest stagnating situations at best.  Therefore, the eye shifts toward the US to lead the way and in a stunning turn of events this afternoon (if I am reading correctly and that might be a stretch) Janet Yellen reverses course and re-commits to a policy of Quantitative Easing due to the problems in these other leading economies.  While the news was apparently good in the short term for the markets, I don't know how in the world that a decision made in a couple of hours due to one day's market activity after a carefully thought-out multi-month plan to shift the other way could ultimately be healthy for our markets.  In addition, the Ebola situation continues to build upon itself as the 2nd nurse to treat the initial victim has become infected and the fact that she was allowed to fly commercially after treating the patient has put the entire nation into a tizzy.  Ultimately, the nation will look to its leadership, which I have said many times is at its weakest point in the history of this republic, between the President and Congress.  Going forward with these situations, it doesn't give a warm, fuzzy feeling about the markets.  As for the agricultural markets, they took the cue from the broader markets today and closed lower.  Cotton was just narrowly lower, with December dropping 45 points to close at .6371 and March at .6177, down 28.  Both corn and soybeans were off by roughly a dime today, and we were able to get some 2015 production hedged before the market moved lower this morning as we discussed yesterday.  The close in soybean prices today will look particularly ominous if we see follow through selling tomorrow.  Potential dryness in Brazil through early next week will keep prices from completely collapsing for now, but I still believe this is a prime pricing opportunity for grain marketers on this rally.  Other markets that took it on the chin today include the energies, livestock, and currency markets.  I've been wrong about ten times about the livestock markets, but it won't cost me anything to predict another top in the cattle market with all this surrounding ominous news.
Inside the Cotton Market
With all the focus on the outside markets today, there just isn't much cotton news to report on this "No News Wednesday".  Needless to say, the softening of a world economy is never good for cotton prices in the long run as cotton is certainly seen as a luxury good.  And as I've reported in the space plenty of times over the last few months, we already have all the bearish news we need for the foreseeable future.  Due to the Columbus Day holiday, I am assuming that exports will be delayed one day until Friday so we might not have very much news to trade tomorrow either.  Chinese markets have been more subdued since they have returned from vacation and we seem to have settled into a trading range for the time being as well.  Looking at December as the lead, yesterday's negative action and today's close would indicate that a test of the recent .6312 low would be in the cards before a test of the .6565 high however.  With the forecast for virtually all of the US cotton belt looking very good for the next 7-10 days after recent adversity, that would only support that theory as we mentioned yesterday.  While we continue to hold out hope of a last gasp rally for December, it seems more likely that the market might just fall under its own weight and the influences of the outside forces we mentioned in the earlier heading.  What I am starting to focus on now is how to get the most bang for our buck going forward in the 2015 and 2016 crop seasons. It is certainly discouraging to look at the closes up top and see that December 2015 and December 2016 closed weaker than any of the other months today.  Unfortunately, I think that this is a trend we might see continue and I certainly didn't believe that 3-4 months ago.  This cotton bear market is one that will most likely last for at least two, probably three, and possibly four seasons from where I sit.  In future letters, we will start to discuss the strategies that we are looking toward to potentially maximize our returns on our future cotton crops, for those that plan to plant cotton, even as futures prices are at or below the cost of production.  I do believe that we can use futures and options to get into a profitable situation despite this situation.
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