July was not friendly to agricultural bulls. In round numbers, cotton gave up nearly 1100 points, soybeans lost almost 77 cents; corn and wheat gave back 58 and 48 cents, respectively.

For the week, Dec lost another 208 points while trading a range just shy of 400 points. Strengthening U.S. currency helped Dec to post new contract lows over the last 3 days. The contract low came early this morning at 62.02, 2 points on where we thought Dec could trade down to this week.

Despite lower trending prices, the trade expected and saw W/W new crop sales reductions. Sales were still strong at approximately 250K RBs while shipments were stronger W/W at just above 120K RBs. Still, 120K RBs fewer new crop sales over a sales period in which the volume weighted average price and average low prices were at approximate 100 points discounts vs the previous sales period sparked fresh selling.

However, the report was not entirely bleak. Over the past 4 weeks, the US has logged about 1.2M bales of new crop sales and new crop sales currently stand at approximately 36% of the USDA 10.3M bales export projection for the MY that began today. Accounting for old crop sales likely to not be reported as shipped by July 31, the US is nearly 42% committed against the USDAΆs export target. Further, China was a large purchaser of US new crop bales at nearly 105M RBs.

Export sales for the week ending July 31 are also likely to be strong with the volume weighted average and average low prices over the assay period at approximate 240 and 300 points discounts, respectively, vs the week ending July 24.
Still, it is burgeoning world and US supply that gives this market its bearish flavor, and mills are all too aware of this. World cash prices, in general, continued their current trend southward this week.

All that said, supply issues are beginning to appear on the horizon. Areas across the North China Plain have had to deal with both drought and flooding while temperatures over the northwestern areas are reported to remain far too cool for optimum plant reproductive development.

Indian dryness remains a serious issue over southern regions while this seasonΆs initial moisture deficit has all but been erased over other areas, although it remains yet to be seen how much late sowing of cotton will affect final yields. However, it has been postulated that this seasonΆs delayed monsoon activity may actually result in greater production via increased area sown to cotton at the expense of oilseeds.

Looking forward to 2015, an announcement out of China (CNCRC) today estimated 2015 production in China at a 23M bales vs. approximately 30M this season. The expected reduction is the result of an expected lack of producer direct subsidies outside of the northwestern territory of Xinjiang.

In the US, published private estimates of US production have ranged from 17M – 17.6M bales, but this crop still has issues to deal with.

Across much of the cotton-producing US, cool temperatures have persisted for most of the last month while intense sunlight has been difficult to come by. Producers and consultants with whom we speak are not enthusiastic regarding yield prospects at this time. Many of our contacts rate this seasonΆs crop somewhere near average. Further, as often occurs in cool, wet seasons, insect pressure, particularly from plant bugs and armyworms, has been reported in several regions, raising questions about final yield and quality.

The USDA will put forth results from their first objective yield survey on the Aug WASDE report. Because of average inputs that are used in their modeling procedures in late July, the Aug results often tend to overestimate yield for a sub-par crop and underestimate yields for particularly strong crops. We think that the results of the survey are not likely to vary much from the USDAΆs latest US projection of US production.

Looking forward to next week, rallies over the last two days might cause one to think that things do not seem quite as bleak as in previous weeks. However, for the week ending July 29, the aggregate speculative sector increased their futures only net short position 4 fold to 8.3K contracts and are now net short approximately 2K contracts on their futures and options combined positions. Their implied option position of just over 6K contracts may convey some uncertainty, but their bias was obviously for the market to move lower from the 65.00 – 66.00 range.

Technically, the market remains much oversold on a weekly basis; money flow indicators likewise remain oversold. Our proprietary analyses suggest that similar market structures have nearly a 3 in 5 chance of closing lower, but often near unchanged W/W, while experiencing a similar level of volatility.

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