Here we go again, with Citibank and a few other big bruisers suggesting to climb back aboard the idea that commodities are an investment. One widely read newsletter today said “Conditions are in place for commodities to do well. The US economy is growing, and world governments are printing money. With big gains in stocks and real estate, investors have given up on commodities.”
Commodities have been on a roll since the 2nd week of Jan, but when one stands back and looks at the CRB chart it has merely moved to the upper level of a flat channel, and there is no breakout anywhere. The CRB has been sideways for 14 months, so we are a little surprised to hear of all the love and desire coming from the so-called “big money players.” With grain carryouts all set to move into surplus barring harsh weather, we are much more inclined to press the short side here.
As for cotton, we’re on the road to coming up with a new crop world and US production, as the May USDA report is less than 2 weeks out. We’ve got a pretty good idea on most states, but are hung up on that one district in the Lone Star State, the all-important almighty 1-S. That district and 6 remain in severe drought, while the rest of Texas is in pretty good shape. The Rio Grande Valley is looking better and better, as there is a forecast for ½” to 1” for all of 10-S and southern halves of 10-N and 8-S. But 1-S and 6 remained burnt toast. The next 6 weeks are critical for what could be a 2.5 Mb swing.
We like the bear side of N/Z, and the bear side of July outright. Farmers should go ahead and get at least 50% hedged in new crop, although there is no rain in the forecast for the next 10 days. A surprise rain over Lubbock would send prices down in a tumble, so its best to have something on now. We believe grain prices have reached a spring high, and should roll over if weather cooperates. New crop cotton just may be the last man standing if the Southern High Plains run dry into early June.
The July has sliced through the 21 day average, and as this was written it was testing the 34 day avg at 9190. The 55 day avg is at 9047 and coincides with the positive trend line off the Nov and Feb lows. The low of the last 2 weeks is 9073, and for the last 5 weeks is 9002. Expect size sell stops in the 9000-9050 area. Seasonal trend is negative.