Cotton Price Unravels as Supplies Rise – WSJ

Cotton Price Unravels as Supplies Rise

Rain in Texas Is Expected to Boost Crop; Slower Global Growth Could Hurt Demand

July 27, 2014 2:07 p.m. ET

Cotton prices have retreated to the lowest level in nearly five years as investors worry that global production could overwhelm demand for the fiber.

The U.S., the world’s biggest cotton exporter, is expected to produce a large crop in the season that begins Aug. 1. But global demand is likely to fall short, especially with top importer and consumer China wrapping up a 2½-year stockpiling program. U.S. government forecasters predict the amount of cotton left over in warehouses world-wide when the next season ends will reach an all-time high of 105.7 million bales.

“That’s going to weigh heavily on world supplies,” said

John Flanagan,

president of brokerage Flanagan Trading Corp. in Fuquay Varina, N.C. “Prices are on their way down to the 50-cent level.”

Growing weather has improved. Bloomberg News

Cotton prices last traded around 50 cents a pound in April 2009. On Friday, cotton for delivery in December, the most actively traded contract on the ICE Futures U.S. exchange, fell 1.1%, to 65.35 cents a pound. It was the lowest closing price since Oct. 12, 2009, and down 3.5% for the week. The front-month contract, for October delivery, ended down 1.9%, at 65.16 cents a pound.

“We’ve had great weather and that’s got everyone on the run,” said

John Payne,

market strategist at Daniels Trading in Chicago, referring to growing conditions in Texas, the top U.S. cotton-producing state.

After years of drought, Texas has begun to see rain in cotton-growing areas. Government forecasters, citing the rainfall, recently increased their estimate for U.S. cotton output during the 2014-15 season by 10% to 16.5 million 480-pound bales, exceeding market expectations for a 4.7% upward revision to June’s estimate.

There are also concerns about weakening demand. The International Monetary Fund recently cut its global economic-growth forecast for this year to 3.4% from an April estimate of 3.7%, damping sentiment in the cotton market. Cotton prices are particularly sensitive to economic data, because demand for the fiber is tied to consumer spending on items such as apparel, bed sheets and towels.

China had been a major support for the market, quadrupling its stocks since it began a strategic purchasing program in late 2011. But that program is wrapping up, as China has had trouble unloading its massive stores of the fiber on the domestic market.

The recent drop in cotton prices could spark defaults from mills that contracted cotton at higher prices, said

Jordan Lea,

co-owner of Greenville, S.C., cotton merchant Eastern Trading Co.

After prices plunged from a post-Civil War high three years ago, a wave of defaults by mills hit balance sheets at some of the largest cotton traders, setting off a surge of legal battles, some of which are still unresolved. “It’s always the elephant in the room,” Mr. Lea said. “Anytime you get a move down like this, the risk exists.”

Fain Shaffer,

president at Infinity Trading Corp., a brokerage in Indianapolis, expects prices to slide to 60 cents a pound in the near term. “We’ve got large production and questionable demand,” he said.

—Leslie Josephs contributed to this article.

Write to Alexandra Wexler at alexandra.wexler@wsj.com

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Cash Crops With Dividends: Financiers Transforming Strawberries Into Securities – NYTimes.com

Cash Crops With Dividends: Financiers Transforming Strawberries Into Securities

By ALEXANDRA STEVENSON July 21, 2014 8:56 pmJuly 22, 2014 2:36 pm
Photo

Steve Fessler of Prudential Agricultural Investments, left, shows Thomas S. T. Gimbel the harvest on a farm in Watsonville, Calif.Credit Peter DaSilva for The New York Times

His boots were caked with mud when Thomas S. T. Gimbel, a longtime hedge fund executive, slipped in a strawberry patch. It was the plumpness of a strawberry that had distracted him.

Mr. Gimbel, who once headed the hedge fund division of Credit Suisse, now spends more time discussing crop yields than stock or bond yields.

He is the man on the ground for a group of investors — including New York’s biggest real estate dynasty, two Florida sugar barons and the founder of a multibillion-dollar investment firm — who have been buying up farms across the United States through a real estate investment trust called the American Farmland Company.

Hedge funds are not new to farmland. For nearly a decade they have scoured the corners of the globe for cheap land as food prices have soared, positioning themselves to profit from the growing demand. Hedge funds now have $14 billion invested in farmland, according to the data provider Preqin.

But in the latest twist, a small but growing group of sophisticated investors and bankers are combining crops and the soil they grow in into an asset class that ordinary investors can buy a piece of.

Farmland Partners and the Gladstone Land Corporation, two real estate investment trusts that also own and lease farmland, are already trading on the Nasdaq stock exchange.

For now, American Farmland is a private company, and its founder, D. Dixon Boardman, is pitching the vision to Wall Street. Corn, cotton, lemons, walnuts, avocados: If it grows in the ground and has an attractive income stream, he is peddling it.

“It’s like gold, but better, because there is this cash flow,” Mr. Boardman said. The income stream comes from the rent farmers pay American Farmland and also often includes a share of the revenue from the crops. The company buys farms with permanent crops like almonds and avocados and row crops like cotton and corn.

Down the line, if American Farmland follows the same path as Farmland Partners and Gladstone Land and lists on a public exchange, Mr. Boardman will have another audience to pitch his vision to: ordinary investors.

American Farmland has spent $131 million on 16 farms and more than 11,000 acres of tillable land — the equivalent of 13 Central Parks. It’s a small start, but Mr. Boardman, Mr. Gimbel and their partners have large ambitions.

Photo

This strawberry field in Watsonville, Calif., is owned by the American Farmland Company, which has acquired more than 11,000 acres of tillable land.Credit Peter DaSilva for The New York Times

They are competing with investors that have huge war chests. Alaska’s state pension fund, for example, had $485.9 million invested in farmland in 2013. The world’s biggest asset manager, BlackRock, has $180 million of its clients’ money in an agricultural fund, according to Preqin.

The latest wave of interest was generated by the 2008 financial crisis. As global food prices soared and opportunities to buy land abounded, investors like BlackRock, Whitebox Advisors, Ospraie Management and George Soros’s hedge fund, Soros Fund Management, offered their clients ways to invest in the heartland. Investors were wary of the exotic sliced-and-diced securities that had contributed to the crisis, and farmland seemed more tangible.

“It was a major inflection point,” said Philippe de Lapérouse, managing director for the agriculture consulting firm HighQuest Partners. “At that time, investors were looking at farmland as an attractive asset to hold.”

Many individual investors were soon presented with a different challenge: Farmland can be difficult to sell quickly. Some hedge funds stopped offering agriculture investments. But the flow of money from some of the country’s largest pension funds has remained steady.

Wall Street’s foray into farmland may present its own challenges. Shares in Farmland Partners and Gladstone Land have been volatile, indicating investor uncertainty. “It’s a question of whether it is really in the long term something that’s going to appeal to investors,” Mr. de Lapérouse said.

Mr. Boardman and his partners — among them Harrison T. LeFrak, of the LeFrak real estate empire in New York; Alfonso and Pepe Fanjul, the Cuban-American owners of a sugar conglomerate; and William von Mueffling, the founder of Cantillon Asset Management — think it will.

Mr. Gimbel said, “It’s unlike any other asset class.”

American Farmland teamed up with Prudential’s agricultural investment arm, Capital Agricultural Property Services, which runs a farm management and real estate brokerage business. The unit provides loans to farmers and manages farmland, giving American Farmland access to information in an often opaque real estate market.

“I was not about to put on my Wellington boots with my pinstriped suit,” Mr. Boardman said.

American Farmland and other Wall Street firms could soon crowd the heartland.

“I probably have a call from an interested party once a day, someone who has never invested in farmland,” said T. Marc Schober, a partner at Colvin & Company, which connects buyers and sellers of farmland.

Todd H. Kuethe, an assistant professor of land economics at the University of Illinois, said that at agriculture conferences, which were once the domain of farmers and industry insiders, a majority of participants are now institutional investors, venture capitalists and hedge fund managers.

“The share of bank and financial representatives who really want to know what is going on is now surpassing farmers,” Mr. Kuethe said. “I think there are more folks sitting around with money to buy than there is farmland.”

The few metrics that exist have helped lure many. National net farm income, considered a bellwether, is forecast to hit a record high of $130.5 billion for 2013, according to the Economic Research Service of the Department of Agriculture. The figure for 2014 is expected to soften to about $95.8 billion.

Photo

Thomas S. T. Gimbel, left, and Steve Fessler among the grapevines at Kimberly Vineyards in Soledad, Calif.Credit Peter DaSilva for The New York Times

The value of farmland in the United States has appreciated on average by 8.4 percent over the last year and 4.7 percent annually since 1990, according to an index from the National Council of Real Estate Investment Fiduciaries. Taking into consideration the income generated by crops, the total average return was 17.4 percent over the last year and 11.9 percent annually since 1990.

But not everyone thinks farmland values will continue to rise endlessly.

“You can certainly overpay for farmland, and if crop prices declined for whatever reason — for example because of some type of natural disaster — there are all sorts of reasons why, all of a sudden, the income stream does not support the price you paid for a piece of land,” said Jeffrey R. Havsy, director of research for the council.

And as the financial world’s interest in farmland grows, some observers have raised concerns about the new landowners’ switching to crops that pay better but that work the soil too hard and use up precious resources like water. In California, for example, a recent move toward nut trees has put pressure on already constrained water resources during a severe drought.

These concerns are likely to increase as more farmland changes hands from farmers to corporations.

But to Mr. de Lapérouse, whose HighQuest Partners started Global AgInvesting, a series of conferences that take place in Dubai, London, New York and Singapore, the current level of interest is just the beginning.

“Less than 1 percent of global farmland is owned by institutional investors,” Mr. de Lapérouse said. “So even if you quintupled that, it would be a major sea change, but it’s still only a little territory.”

A version of this article appears in print on 07/22/2014, on page of the NewYork edition with the headline: Cash Crops With Dividends.

Hay Supplies Ample In East Texas | Hay & Forage Grower

Hay Supplies Ample In East Texas

Rains boost production, bring early armyworms
Jul 15, 2014

An abundance of rain across East Texas helped producers make plenty of hay so far this season.

March and April were cooler than normal, while May and June brought significant moisture in his area, says Ross Kinney, a hay grower from Kilgore, about 120 miles east of Dallas.

“I have not irrigated at all this year. I haven’t turned my system on. Usually by the middle of June we have to start irrigating because it’s so darn dry.

“As a result, we’ve had a lot of hay produced in this area,” he adds. “A lot of hay got wet because it rained more often than it was supposed to, but people did really well overall.”

Prices remain relatively steady, according to Kinney. Small square bales are selling for $7-$8 each out of the field. Round bales, depending on quality, run anywhere from $65 to $70 each.

“People have been able to produce three or four round bales per acre because of the rain we’ve had,” he notes. “Right now in our part of the country there is more than an ample supply of hay. Somewhere out in West Texas, it is probably much drier and hay production is not doing so good.”

One downside to all the rain is a “tremendous bout of (fall) armyworms[1],” he says. Outbreaks typically follow bouts of rain, and the pests feed primarily on bermudagrss, wheat, ryegrass.

“It happened about a month to six weeks earlier than normal. It was absolutely due to the early rainfall.”

In parts of West Texas, where moisture has been at a premium, grasshoppers have been the problem, Kinney says.

He raises 200 acres of bermudagrass and markets most in 60- to 65-lb small squares to horse owners within 120 miles of his farm.

Want more stories like this?

Subscribe to eHay Weekly[2] and get the latest news delivered right to your inbox.

Alfalfa prices were $5-15/ton lower as many dairies backed off the market and changed feed rations, according to USDA’s July 11 market report. Prices for other classes of hay were steady to weak, and trade activity was light to moderate.

In the Panhandle and High Plains region, small square bales of premium- to supreme-quality alfalfa were $330-360/ton, or $10-11/bale. Large squares of premium- to supreme-quality alfalfa priced at $265-295/ton delivered. Large square bales of coastal bermudagrass sold for $202/ton delivered.

In the Far West and Trans Pecos region, small squares of premium-to-supreme alfalfa were at $280-360/ton, or $8.5-11/bale. Large squares bales of premium-to-supreme alfalfa sold for $245-280/ton.

In the north, central and eastern regions, small squares of premium-to-supreme alfalfa sold for $230/ton, or $7/bale. Good- to premium-quality coastal bermudagrass, in small squares, was $230-265/ton, or $7-8/bale. Large rounds of good-to-premium coastal bermuda priced at $120-150/ton.

In southern Texas, good- to premium-quality coastal bermudagrass sold for $230-265/ton, or $7-8/bale. Large rounds were $120-170/ton, or $60-$84/roll at good to premium quality. Fair- to good-quality bermudagrass hay was at $100/ton or $50/roll.

Contact Kinney at 903-522-0308 or ross@esawireless.com[3].

Today Grain Future

Corn futures closed 4 to 5 cents higher on the day. According to EIA data, US ethanol production increased to average 943,000 barrels per day last week, which was up 16,000 b/d from the week before. Stocks of ethanol were down 400,000 at 17.9 million barrels as the reduced July 4 week production was smaller than demand. Ethanol imports averaged 5,000 bpd. Private exporters reported to the USDA export sales of 210,448 MT of corn to unknown destinations for delivery during the 2014/2015 marketing year. In other export news, South Korean buyers were said to have bought 55,000 MT of optional origin corn for December arrival. Trader talk is the EU is now enforcing a €5.32/t import duty ($7.20/MT) on corn in response to US prices dropping below the EU reference price.

Sep 14 Corn closed at $3.78 1/4, up 4 1/4 cents,
Dec 14 Corn closed at $3.86 3/4, up 5 cents,
Mar 15 Corn closed at $3.98 1/2, up 5 1/4 cents
May 15 Corn closed at $4.06 3/4, up 5 cents

Soybean futures closed 6 to 17 cents higher. Private exporters reported to the USDA export sales of 120,000 metric tons of soybeans to China for delivery during the 2013/2014 marketing year; as well as an additional 240,000 MT of soybeans to unknown destinations for delivery during the 2014/2015 marketing year. Chinese futures prices for September have dropped below $19 per bushel, but the import spread is still very attractive even with tariffs and freight. There is also potential for a widespread strike in Argentina. Trader talk is that South Korea’s MFG is tendering for up to 55,000 MT of soy meal.

Aug 14 Soybeans closed at $11.87 1/4, up 6 3/4 cents,
Sep 14 Soybeans closed at $11.21 1/2, up 17 1/4 cents,
Nov 14 Soybeans closed at $11.02, up 15 3/4 cents,
Jan 15 Soybeans closed at $11.10 1/2, up 15 1/2 cents,
Aug 14 Soybean Meal closed at $383.70, up $4.60,
Aug 14 Soybean Oil closed at $36.83, down $0.07

Wheat futures closed mixed, with Chicago fractionally higher. Trader talk is that Algeria has tendered for 50,000 MT of milling wheat for October shipment. The Russia Ag Ministry has commented their total grain harvest will be 100 MMT, which is up 3MMT from the previous forecast of 97 MMT. According to SovEcon, prices for Russian wheat have come down significantly as the new crop becomes available. Chicago futures are holding above a multi-year uptrend line dating back to 2005. Trade expectations for the weekly USDA Export Sales report are modest, as the reporting period includes the July 4 holiday weekend.

Sep 14 CBOT Wheat closed at $5.38, up 1/4 cent,
Sep 14 KCBT Wheat closed at $6.37 1/4, down 1 3/4 cents,
Sep 14 MGEX Wheat closed at $6.28, down 2 1/2 cents

Live Cattle futures settled $0.05 lower to $0.07 higher. Feeders were $0.72 to $1.07 lower. Wholesale beef prices were mixed. Choice boxes were 29 cents higher today at $250.82, with Select boxes down 60 cents at $242.86. The choice/select spread widened 89 cents. A few cash cattle trades have been reported at $155 today, with $244 in Kansas on a dressed basis. Asking prices are mostly in the $248+ range in the north. The CME Feeder Cattle Index was off $0.65 from the previous day at $216.12. Week to date FI slaughter at 344,000 head is down 6.5% from year ago.

Aug 14 Cattle closed at $147.675, up $0.050,
Oct 14 Cattle closed at $151.300, up $0.075,
Dec 14 Cattle closed at $152.050, down $0.050,
Aug 14 Feeder Cattle closed at $209.825, down $1.075
Sep 14 Feeder Cattle closed at $210.500, down $0.725
Oct 14 Feeder Cattle closed at $210.675, down $1.000

Lean Hogs settled $0.17 to $0.75 lower. The average pork carcass cutout value continues to rise seasonally, gaining 71 cents to $135.89 today. The volatile belly primals were down $4.92, but loins were quoted $5.50 higher. The CME Lean Hog Index has tacked on another $0.58 at $133.36. Cash hog prices in the Eastern Corn Belt (ECB) were not reported due to confidentiality rules. The WCB weighted average is down $1.35, with the IA/MN area values down $1.65 from the day before in the pm report. Week to date hog slaughter at 1.555 million head is down 32,000 from last week and off 4.4% from the same point in 2013.

Aug 14 Hogs closed at $130.525, down $0.175,
Oct 14 Hogs closed at $115.075, down $0.750
Dec 14 Hogs closed at $104.000, down $0.400

Cotton futures closed 14 to 24 points lower on the day. December futures on the ICE settled at the lowest reading for an “active month” since June 2012. October is ignored due to limited volume. China cotton futures on the Zhengzhou exchange for Jan delivery were up 0.50%. Cash trading for business to business sales was reported at 54 bales on the Seam. ICE Certified stocks were last reported at 321,455 bales, with 3,953 new certs, 49,712 decerts, and 6,384 bales awaiting review. The Cotlook A Index is down 0.50 at 83.05.

Oct 14 Cotton closed at 68.39, up 14 points,
Dec 14 Cotton closed at 67.64, down 11 points
Mar 15 Cotton closed at 68.3, down 24 points

 

Today Grain Future

Corn futures closed 5 to 9 cents lower on the day. The Sept 14 forged new low for the move at $3.71 before bouncing a few cents to finish at $3.74. Forecasts for much above normal temps in the WCB next week supported the market as crops there have limited deep root development after all the rain in June and early July. On the other hand, things are nice and cool for pollination. 34% of the US crop is now silking. The national crop condition was upgraded again this week with 76% in the good or excellent category. The Brugler500 index rose 2 points to 392.

Sep 14 Corn closed at $3.74, down 7 1/2 cents,
Dec 14 Corn closed at $3.81 3/4, down 6 1/2 cents,
Mar 15 Corn closed at $3.93 1/4, down 5 3/4 cents
May 15 Corn closed at $4.01 3/4, down 5 1/4 cents

Soybean futures closed steady to 16 cents lower on the day. It was a volatile session with the Aug 14 contract establishing a 42 cents range on the day. Earlier today, private exporters reported to the U.S. Department of Agriculture export sales of 120,000 MT of soybeans to China during the 2014/2015 marketing year. Approximately 41% of the national soybean crop has reached the blooming stage; four points ahead of the 37% average for this date. NE is 15 points ahead and MO is 8 points ahead of normal. The Brugler500 Index for crop condition was UNCH from last week. Condition ratings dropped in 10 of the 18 major states, but increased enough in 7 others to leave the index at 381. In the monthly NOPA report, both oil stocks and crush came in on the low side of the average trade expectations. Oil stocks were 1.847 billion pounds at the end of June; monthly crush was reportedly 118.72 mbu.

Aug 14 Soybeans closed at $11.80 1/2, down 16 1/2 cents,
Sep 14 Soybeans closed at $11.04 1/4, down 3 3/4 cents,
Nov 14 Soybeans closed at $10.86 1/4, unch,
Jan 15 Soybeans closed at $10.95, unch,
Aug 14 Soybean Meal closed at $379.10, down $9.50,
Aug 14 Soybean Oil closed at $36.90, up $0.02

Wheat futures closed steady to 8 cents lower on the day. The Sept 14 MGE Wheat contract displayed the most weakness and finished down more than a nickel. According to Sovecon, prices for Russian wheat have come down significantly as the new crop becomes available. USDA reported that HRW harvest has caught up to normal at 69% completed (vs. 68% average). Kansas was reported at 90% harvested, which compares to the 5 year average of 96%. Oklahoma is 97% harvested, just below the 5 year average of 98%. Spring wheat is 69% headed, also vs. a 5 year average of 68% for this week. The spring wheat crop condition rating improved by 1 point. Montana was reported at 68% headed, well ahead of the 5 year average of 54%.

Sep 14 CBOT Wheat closed at $5.37 3/4, unch,
Sep 14 KCBT Wheat closed at $6.39, down 7 1/4 cents,
Sep 14 MGEX Wheat closed at $6.30 1/2, down 8 3/4 cents

Live Cattle futures settled $0.67 to $1.07 higher on the day. Feeders were $0.67 to $1.07 higher. Wholesale beef prices were higher in the morning report, but lost some steam before the afternoon report. Choice boxes were off $0.61 at $250.53 and select boxes averaged $0.96 lower at $243.46. Cash cattle trade has not yet developed for the week, but a few isolated sales were reported between $152-$154, and dressed sales between $243 and $250. The CME Feeder Cattle Index was off $0.85 from the previous day at $216.77. Week to date estimated slaughter is 228K head, off 1K head from a week ago, and 14K head smaller than a year ago. USDA showed a slight deterioration in pasture conditions, with 55% of the acreage rated good or excellent, down from 56% the week before.

Aug 14 Cattle closed at $148.575, up $0.675,
Oct 14 Cattle closed at $151.850, up $0.975,
Dec 14 Cattle closed at $152.500, up $0.225,
Aug 14 Feeder Cattle closed at $211.525, up $1.075
Sep 14 Feeder Cattle closed at $211.825, up $0.900
Oct 14 Feeder Cattle closed at $211.775, up $0.675

Lean Hogs settled $0.22 to $0.50 higher. The average pork carcass cutout value was higher again today, up $0.33 at $135.18. That is the third time in five sessions with the afternoon carcass price reported North of $135. Estimated week to date slaughter is 760K head, 30K head smaller than last Tuesday, and 42K head smaller than the same period a year ago. The CME Lean Hog Index tacked on another $0.40 at $132.78. Cash hog prices in the Eastern Corn Belt (ECB) were not reported today. The WCB weighted average was down $0.88, with the IA/MN area values off $0.51 from yesterday.

Jul 14 Hogs closed at $133.875, up $0.500,
Aug 14 Hogs closed at $130.725, up $0.400
Oct 14 Hogs closed at $115.950, up $0.225

Cotton futures closed 35 to 54 points lower on the day, settling at the lowest price for the front month contract in more than two years. Smaller production prospects are unable to counter the large stocks. ICE Certified stocks were last reported at 367,214 bales, with 1,554 new certs, 16,653 and 9,703 bales awaiting review. The Cotlook A Index is up 0.20 at 83.55. USDA reported 70% of the crop is in the squaring stage; 24% is setting bolls. Cotton condition rating was 53% good/ex, down from 55% last week but above the 42% from year ago.

Oct 14 Cotton closed at 68.25, down 35 points,
Dec 14 Cotton closed at 67.75, down 55 points
Mar 15 Cotton closed at 68.54, down 54 points