Daily Market Update - October 21, 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            .6363               .6210                .6279              + .0050            - .1564

Mar 15 Cotton           .6225               .6153                .6191              + .0021            - .1705

Dec 15 Cotton            .6545               .6518                .6542              + .0015            - .1339

Dec 16 Cotton                                                               .6836                          

Dec 14 Corn               3.5875              3.4700            3.5600            + .0775             - .9425

Sep 15 Corn               3.9500              3.8475            3.9275            + .0725             - .7025

Nov 14 Soy                 9.6675             9.4275             9.6425            + .2000            - 1.7075

Nov 15 Soy                 9.7900             9.5950             9.7575            + .1450            - 1.5100

July 15 Wheat            5.5100             5.3925             5.4725            + .0825            - .9800

 

Cotton LDP payment (through Thursday) -    2.17 cents/lb   (est. 2.74 next week)

 
Tuesday's Market Report
 It's been several days since I wrote an update and last we spoke the equity markets were in the headlines as they were in  the throes of a monumental upheaval that for now seems to have quieted down, with the emphasis on "for now" in my opinion.  As we get back to our supposed "bread and butter" of the agricultural markets, the technical buying in the grain markets are front and center today with corn, soybeans, and wheat all posting strong gains on this Tuesday.  Cotton prices were higher as well, with December leading the way as the December/March spread continues to not have the foggiest idea as to which way it wants to blow in the wind.  December cotton gained 50 points on the day, settling at .6279 after racing as high at .6363 at one point this morning.  The March contract was only higher by 21 points at .6191.  Next December was even a bigger dullard at .6542, up 15 points.  As we will touch on later, I'm afraid December 2015 and December 2016 are going to be some of the biggest dullard cotton contracts in recent memory.  Soybean prices led the way today, up 14-20 cents across the board, led by the soybean meal contracts.  Slower than expected harvest pace, which we certainly expect to pick up soon, is causing a delay in bean deliveries which is keeping a firm tone under the meal market.  For cotton producers, we hope this trend continues as it could keep a firm tone under cottonseed prices for a tad longer than we expected.  Corn prices were higher by 7-8 cents, and wheat prices were higher by a like amount today.  I still believe all of this buying in the grain trading is strictly technical in nature as harvest weather for the Midwest couldn't look better, yield reports are fantastic, and reports for widespread rains over most all growing areas in Brazil over the next two weeks are now in the cards.  While these grain rallies are impressive, stiff resistance still lies ahead for these markets.  As I've said in previous letters, next year's corn above $4.00 and soybeans at $10.00 are hedging levels for me.  The stock markets remain in a huge volatile situation as the S&P today put in the largest one-day gain of the year on a percentage basis.  The Dow Jones and Nasdaq finished the day almost equally strong as investors bet on additional European stimulus and strong earnings from Apple were cited as chief reasons for the gains.  One headline on Bloomberg said it all in my opinion, "All the Markets Need is $200 Billion per Quarter from the Central Bankers".  Seems easy enough doesn't it?  I don't see why we don't just ring the magical Dow 50,000 bell and let everyone go home rich forever and ever.
Inside the Cotton Market
 As the harvest for the US cotton crop reached its biggest fever pitch yet and the 10-14 forecast looks clear as bell for virtually every acre of open cotton in the United States, the December/March spread decided to widen out to 141 over at one point before settling at 88 over, gaining 29 points.  Makes sense to someone I guess.  I'm not going to argue with it as long as buyers keep buying cotton off the December contract and along with an LDP payment, we can receive a pretty decent premium to the thought of waiting until later when both basis and prices weaken as the glut of harvest really catches up to us.  Looking at the December contract, it looks for a minute like we might really see some fireworks when prices popped above the 20-day average at .6306 and moved to .6363, but by the end of the day, a close back below that average left the move feeling pretty hollow.  It feels to me like we are certainly settling into a comfortable "harvest season" trading range of .6200 to .6400.  I also expect that is where the Harvest Price option for those with CRC crop insurance to look for prices to settle.  The last 3-4 years we have seen the December contract rally pretty good as we approach First Notice Day (still nearly a month away) and we certainly hope that will be the case once again this year.  However, the only argument to put up on that side is the historically low Certificated Stocks of 15,000+bales.  The argument against is the projected weather and harvest pace between now and then, as we should really see some hay being put in the barn over the next 3-4 weeks.  Additionally, we the battle for high grade cotton is still formidable and buyers are still paying a premium, it is my belief that we will see a good number of high grades being offered during that time frame.  While we have only ginned a smidge under 10,000 bales, we see the quality of the cotton picking up a little each and every day.  As we start picking more and more irrigated cotton, that trend will only continue.  It will be very interesting to see how the quality is in the Mid-South region over the next couple of weeks now that fair skies have finally returned to that region.  But for now, we certainly seem to be in a holding pattern, with prices in "No-Man's Land" between 61 - 65 cents and I am afraid that may unfortunately become the norm for much longer than we want it.  The next big item on the agenda now that cotton policy in China has become just a tad clearer than mud will be the MSP or Minimum Standard Price in India.  This will become a huge talking point for market letter writers and speech givers over the next several months.  With India's crop now set to become a record-breaking one by most all industry observers and the prices falling as low as it has, the Indian government is now set to do essentially the same thing that the Chinese government has tried to do for the last several years and buy that cotton from its growers in an effort to keep their growers satisified and the market stable.  The one thing that differs between the Chinese and the Indians is the fact that most believe that the Indians can't keep their supply of cotton off the market for an indefinite time.  They don't have the infrastructure or the means to sit on it forever.  In my novice opinion, either policy is idiotic. The first thing I learned in Economics 101 at Georgia Southern University was that the law of Supply and Demand had been around pretty much since Adam and Eve and it is my belief that as soon as these governments realize that it is going to be around much longer than they will, the better off we all will be.  The sooner we take our medicine and rid ourselves of the majority of the 107 million bale albatross hanging over our head, which means lower prices in the interim, the quicker the return to higher prices, we will see.  A three to five to seven year period of prices in the 50s or 60s simply does nobody any good in my opinion. 
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