Ag Market Update - April 29, 2015

Ag Market Update - April 29, 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

July 15 Cotton .6729 .6601 .6709 + .0070 + .0509

Dec 15 Cotton .6640 .6545 .6627 + .0042 + .0185

Dec 16 Cotton .6607 + .0011 + .0029

Dec 17 Cotton .6766 + .0011

Sep 15 Corn 3.7550 3.7050 3.7475 + .0300 - .4800

Nov 15 Soy 9.6275 9.4950 9.6175 + .0875 - .4375

July 15 Wheat 4.8400 4.7425 4.8350 + .0725 - 1.1400

Today's Market Report

It was a general up day for commodities due to a suddenly plummeting US Dollar, and by hook or crook, cotton prices closed at their highest level since September 12th at .6709 basis July. New crop December settled higher also at .6627. After Monday's disappointing close, today puts short-term control back in the hands of the bulls. Grains were also higher, but with the deep drop in the dollar, the gains were seen as disappointing. Soybeans lead the way higher gaining 8-11 cents, while wheat jumped 7-10 cents. Corn gain's were the least at 2-3 cents today. Ethanol production was reported at its lowest level since October and one large ethanol producer, Green Hills, reported an unexpected first quarter loss of 3.3 million. The US dollar dropped 865 points, but at one time was down well over 1000. The dollar's loss was largely due to the data produced by the Commerce Department, showing that the US Economy basically set at a standstill during the first quarter with just a 0.2% gain. This compares with a 2.2% gain in the 4th quarter of 2014 and a very nice 5.0% in the 3rd quarter. Analysts were expecting a gain of at least 1%. The drop in the dollar led to a large gain in crude oil of more than $1.50/barrel, although gains were closer to $2.50 at one point. As to be expected. stock markets were lower on the news of the sluggish economy.

Inside the Cotton Market

While I expected the big bearish reversal in cotton on Monday to stick, the downdraft in the US dollar certainly did nothing to abate the speculator's appetite to be long cotton futures and with the market closing at its highest level in 7 1/2 months, I would expect them to fire more bullets at the long side of the market in the next few days. In addition, many in the know are expecting another constructive export report tomorrow. If you will remember, an export report of 150,000 bales or so last week generated the biggest one day gain in more than 20 months. In other words, the bulls are probably going to bed tonight feeling pretty good about their situation. In fact, the market was at its strongest on the last tick of the day as buying was very strong with the July trading as high as .6729. While we are at the upper end of the range, I would expect the specs to drive this market to new highs tomorrow, especially if we have that good export number. However, should we achieve this and run the market toward 6800-7000, we are just seven days from seeing the likelihood of export cancellations next week in my novice opinion. The Indian government has started to sell some of the MSP bales as the market has moved higher, and any additional advance would likely only intensify that selling. So in the short term, I would expect the July market to test higher with a 50/50 chance of knocking out significant new highs. However, I would expect the trade to sell into this rally with authority, especially if July were to make that push toward .7000. What does all of this mean for growers that sold out of cotton many moons ago? I think we are probably about to get a really good opportunity to sell the first percentage of your 2015 production if you haven't done so already. Just like today when the July market was up 70, the December is generally only going to go up a percentage of that gain. Therefore, if we were to take July prices to a hypothetical .6900, you would likely see December trading no higher than .6800 as the inverse will continue to widen. However, given everything we know about the upcoming season, I would be pricing a jag of cotton at .6800 if I were a grower with nothing currently on the books. Selling an out of the money call for 300 points or so to eventually net more than .70 cents would be another part of my plan. The weather forecast for the next 14 days looks near perfect as far as cotton planting is concerned. A lot of ground will be covered during the optimum planting window. Almost every area of the US cotton belt has adequate or more than adequate ground moisture to assure a good start to the season, and while I certainly have no idea what the next 5 months holds, I still have this feeling in the back of my mind that we will make a more than adequate crop here in the US. Should we do this, there is absolutely no reason for cotton prices to be trading north of .7000, fundamentally speaking. And despite the efforts of traders that employ a total technical point of view, the market almost always comes back to the true fundamentals.