Ag Market Update - January 26, 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 .5879 .5726 .5862 + .0132 - .0165

Dec 15 Cotton .6250 .6154 .6242 + .0092 - .0200

Dec 16 Cotton .6408 + .0039

Dec 17 Cotton .6562 + .0039

Sep 15 Corn 4.1050 4.0450 4.0650 - .0275 - .1625

Nov 15 Soy 9.7275 9.5425 9.7175 + .1200 - .3375

Jul 15 Wheat 5.4150 5.2800 5.2925 - .0725 - .6825

Cotton LDP Payment (through Thursday) - 6.41 cents

Today's Market Report

Cotton prices continued to reach new lows when we were out of the office late last week, but rebounded nicely today on a day where the markets were widely mixed across the board. March cotton gained 132 points on the day, settling at .5862, while new crop December jumped 92 ticks at .6242. In the grain market, soybeans rallied hard late in the session to finish with double digit gains, while buyers of corn and wheat weren't as aggressive. Corn and wheat closed the session with moderate losses. The losses in corn come after several days of slightly higher trading in what most would term a consolidation period. The chart for wheat looks far less favorable as July wheat has lost almost 70 cents per bushel in the month of January alone. Outside markets were mixed as mentioned earlier with crude oil, gold and the US dollar all marginally lower. Stock markets appear that they will start the work week off with slight gains. Crude oil and other energy markets appear to be trying to build a base from which to work higher, but I'm certainly not smart enough to call a low in this market just yet. The biggest outside news continues to be the strengthening US dollar, and the floundering economies elsewhere around the globe. As the EU votes for a Quantitative Easing program to stimulate their economy, the country of Greece is back in the news as citizens their are apparently moving toward the party that is not in favor of such a move. We also continue to read about the slowing economy in China and its ripple effect across the globe.

Inside the Cotton Market

Getting back into the office after being out for the better part of a week at the first of our annual cotton meetings and it is certainly nice to pen an update after a 132 point gain in the market as opposed to informing everyone about another new low in the market. And believe it or not, I actually have a little bit of good news to report for a change! While the mood is still decidedly negative when talking to cotton farmers, cotton ginners, or cotton buyers, there finally might be a ray of sunshine in the larger cloud and it would appear that we can thank another government and a hair brained scheme for our good fortune (for the time being). As mentioned in previous updates, India has now followed the lead of China with regard to purchasing bales from growers in that county in an effort to support prices for them. While they haven't said that they will hold bales for an infinite time ala China, and in fact, it is believed that they will sell the bales sooner than later. Despite that, their unwillingness to sell has created an opportunity for the American cotton farmer and its long term effect on our balance sheet may keep prices from falling totally into the toilet. The last two weeks, we have seen export sales of nearly 1 million bales and the USDA estimate of 10 million bales of exports is now nearly 85% confirmed with more than HALF of the marketing year to go. Even as bearish as I have been, it now stands to reason that the USDA will have to raise this number, thereby shrinking ending stocks here in the US. I thought we would see the market rally Thursday and Friday (we did see a short lived rally on Thursday), but the market continued to pry lower. The longer term problem that we have talked about over and over still doesn't seem to be going away, but as long as stocks here in the US remain tight, it would appear to me that the worst might be over FOR NOW. At some point, a rally will draw those Indian bales out of government hands and serve as a cap on the market. Where that price point happens to be is certainly above my pay grade, but all indications of any move back toward .7000 in the spot month would certainly be enough. I would watch the LDP very close this week, it is 641 points through Wednesday and scheduled to be above 700 points next week. Today's price action will make next week's projection look not as rosy, but my guess this is going to be one of those weeks where you sell cotton on Thursday and POP it Friday morning. At some point, either futures have to move higher or the basis has to break on US cotton, in my opinion. As for new crop, expectations for cotton acreage is all over the board in talking with people at the meeting last week. While a 10-15% reduction here in the US seems to be a common barometer, I talk with some saying acreage will be flat to maybe a slight decrease and then read today where a respected cotton man in the MidSouth thinks acreage may be off 50% out his way. I think it is ultimately going to come down to the producer and his conversation with his particular banker. If acres do fall precipitously and we have some trying growing conditions, we could ultimately see prices rebound sooner than I initially believed, solely based on the ending stocks number here in the US. On the flip side, if we continue to see huge export sales the next few weeks, prices could move high enough to entice cotton acres. The next few weeks, say today through the end of February, are going to have a large bearing on where the cotton market ultimately goes from here. That said, I would still be getting rid of whatever excess cotton I have this week if the market were to continue to firm.