Ag Market Update - May 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
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| Commodity High Low Close Change YTD July 15 Cotton .6557 .6457 .6502 - .0037 + .0302 Dec 15 Cotton .6545 .6418 .6483 - .0045 + .0041 Dec 16 Cotton .6502 - .0014 - .0076 Dec 17 Cotton .6661 - .0014 Sep 15 Corn 3.7050 3.6250 3.6575 + .0050 - .5700 Nov 15 Soy 9.5550 9.3050 9.3125 - .1825 - .7425 July 15 Wheat 4.9100 4.7800 4.8125 + .0025 - 1.1625 |
| As they seemingly do more times than not, the USDA Monthly Supply/Demand came to pass with much more bark than bite. Cotton numbers were pretty well left unchanged showing probable burdensome stocks, probably until I reach Social Security age, and the market reacted negatively as one would expect. However, for the sixth or seventh day in a row, late session buying curbed earlier losses. July cotton settled at .6502, down 37 points, while new crop December lost 45 to finish the day at .6483. Soybeans were the big loser today, dropping 14-18 cents on larger than expected carryout this season and expectations for larger carryout in 2015-16. Corn and wheat were virtually unchanged on the day, rendering the USDA numbers basically a non-event. I would lean on the idea that corn prices might gravitate toward those December lows in the near term, but any additional downside should be contained until we have a better idea of what kind of crop we have growing here domestically. However, I still favor further pressure on soybeans as we go forward. Outside markets are pretty quiet again today, although crude oil prices are once again moving higher, up 1.50/barrel with heating oil and gas futures up more than a nickel a gallon. I'm writing this a little earlier than usual, but for now, the stock markets are pretty much unchanged on the day. |
| As for the numbers put forth by the USDA earlier today, the main letdown for those holding a long position was the fact that the agency decided not to raise the current 10.7 million bale export figure despite sales figures that would lead one to think that would be the case. Therefore with the ending stocks number not being changed, the initial reaction to the report was negative. In addition, with the current improved water situation in West Texas, the USDA used a lesser abandonment figure than most believed they would to initially diagnose the 15-16 crop. For these reasons, the market was on the defensive mostly the entire session. However, just as in past days, we saw a increased buying late in the day to make the losses more palatable. But, in much the same vein, we saw a lower low and a lower close once again for both the July and December contracts, which keeps current momentum in the hands of the bears, technically. However, just as I said yesterday, for now I keep coming back to the idea that is simple enough to just say that Cotton is worth 65 cents. As for new crop, with the seeds here in the US being planted at a fast clip, it's logical to say that the Bull's argument is just as valid as the Bear's argument. We simply don't have a crop to judge as of yet. I do put myself in more of the Bear's camp, but can see the Bull's way of thinking as well. With such a large percentage of the cotton being grown in Texas, specifically in West Texas, any gyrations in weather will have a pronounced effect on the market. However, history tells us that when we are in an El Nino year and West Texas starts a year with adequate to abundant moisture, they tend to make a big crop and big crops generally get bigger as the year goes on. Selling now in India and the newer news that China will start to sell some of its Reserves this Summer will also keep a lid on prices. Here at home in talking to several that would know, the biggest talking points are 1) producers cutting corners on inputs this year, as to be expected from some with low commodity prices and still high input prices and 2) how in the world are we going to harvest/handle all of these peanuts that are being planted so fast? On the first point, that idea isn't generally bearish for prices and on the second, it makes me think that cotton acres may be a tad scarcer than I initially thought. I still think the USDA is way off thinking acres are off by 20%, but my initial thought of 5% might be closer to 10%. As I mentioned earlier, I still favor the lower side for December cotton, but I always reserve the right to change that bias as the weather in West Texas changes. I still think if prices float back toward the top of range, I call it .6600 to .6700, I would be pricing a portion of cotton with the idea that you will likely tack a sizeable LDP on top of that price in the Fall. |
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