Cotton Archives - Page 6 of 6

Planting is close to done in most parts of the country with over 90% of corn in the ground. Now the focus will turn to weather as early growing season is an important time. With a tropical depression in the gulf, it makes it difficult to predict future weather patterns as they are constantly changing. One model predicts for a drought type pattern in the southern plains and western corn belt as the tropical storm Cristobal pulls a lot of energy, so we’ll see how that pans out. Corn prices have been steady the past few weeks with few purchases to get excited about and no early problems to the U.S. corn crop. As long as yield estimates for U.S. corn stays high, there does not seem to be many reasons for a rally unless there is a weather event or we start to see large purchases. Ethanol production has remained steady as reserves are starting to go down, which will hopefully lead to more plants opening back up. The chart below is for July corn and you can see the change in the 20 day moving average as it has begun to tick up.

Soybean prices got a boost this week as Chinese buying continued, despite the government telling companies to quit buying many U.S. Ag products in retaliation to Trump’s comments and policies about Hong Kong last week. Despite what people thought would initially hurt Chinese purchases, tensions seem to be cooling between the two countries (for now). A huge week of soybean meal exports helped fund short covering that gave beans a big boost on Thursday. Continued buying from China would be very supportive for beans, but a decline could see a retreat after recent strength. Look for bean planting to continue its good progress over the next week.

Cotton traded above $.60/pound this week for the first time in the July contract since March 16. Rising futures prices with smaller open interest usually leads to a price reversal, which this price move has seemed to follow. With more open interest in the December contract month, look for more volatility moving forward as speculators will look there. We are barely into the start of hurricane season and already on hurricane number 3 forming in the gulf. A long and consistent hurricane season could do a great deal of damage to the southeast Cotton crop. Cotton has always been sensitive to the U.S. dollar, so a weakening dollar the last couple of weeks has been supportive to prices.

DOW Jones

The Dow Jones continues its climb as it topped 26,000 this week. The markets have recovered quicker than many expected to get to this point. As states across the country have opened back up investors have an optimistic outlook for the rest of 2020. Continuing progress on the Covid-19 vaccine and no spikes in positive test results are all good things for the market and overall economy of the US. This will help people get back to work quickly and hopefully minimize the damage of the long shutdowns.

Crude Oil

Crude continues its climb back to normal prices as OPEC is in discussions to continue production cuts for June. Even though the world is opening back up and oil demand will ramp up, drilling needs to happen at the same rate to not create an oversupply. This agreement being extended would be supportive for crude.

Corn planting in 2020 continued its strong pace last week as the crop is estimated to be at little less than 70% planted. This is well ahead of last year’s pace and with favorable weather outlooks for the rest of May, the crop should be 100% planted by June.

USDA Report
The May USDA Report came out on Tuesday and it’s safe to say it came of little surprise to most – the ‘19/20 US Corn Stocks were a little lower, while ‘19/20 World Corn Stocks were a bit higher.

The main adjustment was made in the Ethanol Corn numbers in ‘19/20 where they cut 100 million bushels. With Ethanol production averaging 17% lower than last year’s number through August, another 100 million bushels would need to be cut to meet lower demand. Even with the country opening back up, there are still uncertainties on demands as more people are interested in a car ride over jumping into a plane. Ultimately, this report just confirmed what everyone already knew: the world is drowning in corn. With a great start to planting and estimates of a trend line yield of 176+, this problem looks to continue for corn as the year goes on.

U.S. Soybean planting, like corn, continued its streak. As mentioned last week, China is well behind pace to meet the amount of ag goods purchased from the U.S. from Phase 1 of the trade agreement meaning U.S. bean prices are at the mercy of Chinese consumption. As political tensions continue to hover over the markets, prices will be dependent on U.S. and China political and/or export news. With the May USDA report being neutral to bearish, it has turned into a waiting game in the bean market as they continue to wait for buyers.

In the meats sector there is currently a disconnect between futures and cash prices; futures price is roughly $15-20 under the current cash price showing an immediate need for beef. The market is showing the packer margins are phenomenal and because of that, the packers are trying to throw the ranchers a bone by offering over the futures price, but not anywhere near the margin difference they are making. In essence, the packers are buying for relatively cheap and selling for a lot more than they usually would as supplies are tight. This is part of the reason the Trump administration is looking into the meat industry, as several large players are foreign-owned. China will not be buying any cattle from Australia due to their criticism over their handling of COVID-19, so some of that demand may be filled from the U.S. but seeing as we are struggling on our end with production, that would put another strain on the market.

Cotton looks to be experiencing a short squeeze this week on July futures. The Midsouth is behind on planting due to cool weather over the past couple of weeks; soil temps need to be above 65 degrees for planting and the mid-south has had several nights in the low 40s in May.

Cool temperatures are a little surprising this time of year, but I think we’ll get through that fairly unscathed. It’s warming up pretty fast, so it shouldn’t hurt us too badly. Dan Fromme (AgFax)

Cotton needs manufacturing around the world to ramp up as countries begin to drive demand. The USDA report this week was neutral-to-bearish and cotton has managed to hold on to most of its gains making short speculators nervous. They’ll be keeping a close eye on Thursday exports as there’s only one month remaining in the July futures contract. Buying from China, like with any other commodity right now, would be a welcome sight.

Relief Package
The House is expected to vote on another round of financial stimulus equaling out to $3 trillion. In this bill, $16.5 billion may be earmarked for direct farm payments and help for the ethanol and biofuel industry. It may also direct the USDA to reimburse any livestock producer that had to euthanize animals due to closed processing facilities (more on that here).

Category: Cotton

Ag Markets Update: May 30- June 5

AG MARKETS UPDATE: MAY 8-15

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