Ag Market Update - January 12, 2015

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 .6075 .5951 .5973 - .0103 - .0054

Dec 15 Cotton .6440 .6330 .6348 - .0097 - .0094

Dec 16 Cotton .6475 - .0082 - .0103

Dec 17 Cotton .6629 - .0082

Sep 15 Corn 4.2400 4.0675 4.2050 + .0350 - .0225

Nov 15 Soy 10.2825 9.9300 9.9375 - .2575 - .1175

July 15 Wheat 5.7450 5.6325 5.6475 - .0775 - .3275

Cotton LDP Payment - 4.87 cents

Today's Market Report

While crude oil and energy markets continue to get the large amount of ink as they continue to spiral to fresh new lows, there was plenty of movement today in agricultural futures markets as the first USDA Supply/Demand numbers gave traders something to chew on. Cotton prices were substantially lower today as the USDA once again increased the ending stocks numbers both here at home and in the world. The spot contract, March, lost 103 points, closing closer to the bottom of the recent range at .5973. New crop December didn't fare much better, closing at .6348, down 97 ticks. The grain market was mixed with corn higher, while soybeans and wheat finished the day in the red. The report was generally considered bullish for corn, bearish for soybeans, and neutral for wheat. However, the overwhelmingly bearish sentiment associated with the soybeans obviously bled over into the other markets. Soybeans lost 25-38 cents per bushel today as the USDA left domestic soybean carryout unchanged and increased world carryout on the thoughts of a bumper Brazilian crop. Corn prices were higher by 1-4 cents, but could get little traction today in the face of the collapse in soybean prices. The US corn yield was reduced by 2.4 bushels per acre and the carryout lowered 147 million bushels. On the surface, this news would appear to keep corn prices afloat for the time being. Today's imbalance between corn and soybeans could very well lead to some acre switching if this becomes a trend. Wheat prices continue to slump, losing 7-8 cents today, and July wheat is now down more than 30 cents only 12 days into the new year. The USDA forecasted a smaller than anticipated winter wheat crop here in the US, but world carryout numbers continue to dog this market. While our updates were few and far between in December, our recommendation to price wheat above 6.50 in July certainly looks like the right move now that prices have eased back toward 5.60. As I mentioned earlier, the big news today is once again in the energy sector. Crude oil is down another $2.50/barrel at 45.75, while gasoline, heating oil, and natural gas are all taking it on the chin as well. Not to sound like a broken record, but for those of us that use a great deal of diesel, gasoline, and natural gas, it would seem like a "no-brainer" to start to hedge these products somewhere down here, but it certainly doesn't look like a bottom is even close to being in place just yet. Goldman Sachs came out today and indicated that they looked for prices to move closer to $40.00/barrel. We also continue to see the dollar index strengthening most every day and while gains were small today, the dollar was higher. At 92.23, the dollar is at its strongest level since November of 2005. Today's high of .9253 coincided with the high that month in 2005. Should we take that level out and close above, it would seem to reason that we might actually take the dollar index back to par for the first time since 2002. Stock markets have been very volatile early in 2015 and were moderately lower today.

Inside the Cotton Market

Just a quick cotton update today as the market continues to go nowhere fast. Prices were pressured almost from the get-go this morning once it was realized that despite the index funds buying contracts late last week, open interest continues to decline. Prices moved to .5951 mid-morning which is essentially equal to the low scored on January 2nd (.5947). Prices recovered some later in the morning, possibly on the news of 20,000+ in decertifications before the noon WASDE report once again put pressure on prices. While today's close certainly looks ragged, the recent range of .5950 to .6200 and the deeper range of .5850 to .6400 haven't really been threatened. We would assume that export business will show back up below .6000 as it has done time and again in the last 3 months. However, with the dollar continuing to strengthen and competitive synthetics getting cheaper every time the energy market breaks, that may not be the wisest of assumptions. That said, while I still maintain a bearish slant, I'm not sure who is out there to sell the market significantly lower. As far as marketing goes, those that haven't done anything will be wise to wait until later in the week to see if the LDP gets larger before selling their cotton. It is still the same market + LDP + basis game that we have been playing for the last 10 weeks as far as selling cotton goes. I don't see any resolution to this predicament until we get a better handle on 2015 cotton acres and that is still several weeks away at best. We will be attending several cotton meetings over the next few weeks and it will be interesting to get the ideas and thoughts of those closely in tune with today's market and their thoughts on prices going forward. As I've mentioned before, there just isn't a whole lot out there to get excited about, I'm afraid.