Ag Market Update - January 20, 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 .5939 .5777 .5779 - .0144 - .0248

Dec 15 Cotton .6320 .6197 .6200 - .0104 - .0242

Dec 16 Cotton .6332 - .0101 - .0246

Dec 17 Cotton .6486 - .0101

Sep 15 Corn 4.1000 4.0200 4.0975 + .0300 - .1300

Nov 15 Soy 9.7050 9.5825 9.6675 - .0850 - .3875

July 15 Wheat 5.4650 5.3025 5.4425 + .0600 - .5325

Cotton LDP Payment - 5.23 cents/lb

Today's Market Report

The .5850 support level for cotton finally broke today as prices followed most other commodities lower. March cotton settled at .5779, down 144 points the lowest level since August 2009. New crop December, which nobody that grows cotton is currently interested, fell also, losing 104 points to .6200. We saw crude oil roll over once again today, which led other markets lower. Crude oil is currently down almost $2.50 again today after a decent rally toward the end of last week. The grain market was mixed but finished the day much stronger than they started. Corn and wheat market were able to finish with decent gains, which soybeans were off by a like amount. A large cancellation of soybeans sold into China, some 175,000 metric tons, certainly had a negative effect on the bean market. Corn and wheat were able to bounce nearly a dime off daily lows. Once again, gold and the US dollar, noted "safe havens" are having the best days on my screen as crude oil continues to sink, bringing down energy stocks once gain as well. Luckily for stock traders, a late rally by technology stocks were able to offset those energy losses and the stock markets look to be able to finish with slight gains. The nation, will I assume, turn to the next to last of President Obama's State of the Union addresses this evening. While it will give the talking heads on various networks something to fill space for the next several days, most of all of this is just a "dog and pony" show with the Republican Congress most likely thwarting any new ideas the President might have. It is a fact that the average US citizen now has a better opinion of both the President and the US economy than they did just a few months ago. There is no doubt there is a direct correlation between that feeling and the recent gasoline prices as I've touched on several times in the last few weeks.

Inside the Cotton Market

No way to sugarcoat today's action in the market and the way that prices finished; it was downright ugly. On very good volume of more than 32,000 contracts, the market spent most all day in negative territory and closed virtually on the session lows. Again, today's price represents nearly a 5 1/2 year low close. In the short run if you are looking for a silver lining, I guess the fact the market only finished about 60 points lower than the recent contract low, and the selling was met with pretty good buying near the lows. What is somewhat discouraging, or could potentially be discouraging for newly minted bears, was the fact that we sold nearly 450,000 last week on the export report. As bearish as I have been, it goes without saying, if we continue to sell cotton at the pace that we currently are, I will have to change my stance somewhat. At the same time, we still see the country of India sitting on a pile of cotton with no stated plan to rid themselves of it. This is probably having as much of a negative effect on the market as anything else. I still see some downside in this market, but would think the risk would outweigh the reward for one wanting to initiate a short position below .5800 for the time being. For those still with cotton to sell, the LDP stands to be at its highest level, starting on Friday at more than 600 points, so I would look to lock in that payment next week and sell that cotton on rallies. For those that have already locked in an LDP, but have yet to sell the cotton, this is a prime reason why I don't like to lock in an LDP and then speculate on price. Hopefully, the market is close to a saturation point and will move back toward .6000 where we can rid ourselves of these bales and look toward next year. Speaking of next year, I still believe that we won't have a good grasp of the direction of the market until we know exactly how many acres of cotton will be planted. While bankers and financiers will ultimately determine that number, in my opinion, any further decline in the December shouldn't have an effect on what a cotton grower can sell his crop for next year (as we are essentially at the level where the LDP would kick in). However any further decline WILL have an effect on how much revenue crop insurance a grower will be able to count on, as the discovery period for the Spring Guarantee is now being calculated. I guess just as the "Grassy Knoll" theorists thought someone was their to keep the harvest insurance price from falling too low last fall can now think someone is out there doing the opposite now. While I remain somewhat bearish, I think prices have fallen far enough for now and if we keep exporting ourselves out of cotton, we could stand to recover that much quicker this summer and fall if we see a domestic shortfall somewhere, whether by acreage or by a shortfall in production. And I remain somewhat bearish because nobody can still give me a reasonable answer what will happen with these historic stocks in China, and now the ones building in India. Once again, I still haven't seen a government support program yet that ultimately trumps Supply and Demand.

I will be out of the office for the balance of the week at the Ginners annual meeting, where we will get a market update from Anthony Tancredi, head of Allenberg Cotton Company. Hopefully, he will have information that can help shape our ideas as we head into the 2015 growing season.