Chewing over some Outlook figures, we find the 20/21 production estimate of 19.5 Mb (US) a fair shot. World production is seen at 118.5 Mb, down slightly due to price down about 6.7% from year ago. Pak and Aust will rise by 3/4 Mb each, after suffering disasters this year. The top 4 producers will all be down by small percentages. World consumption is estimated at 121.0 Mb for 20/21.
The average annual A index forecast by Outlook is 79c. Subtracting 6c to get futures equivalent is 73c. Assuming a +/- 10c, a price range of 83c/63c emerges. If one accepts this, the current futures at 68c is only 5c above the theoretical low, and 15c below the high. In the same report, the Forum pegs the avg annual US farm price at 64c. Adding say 3c to 4c for a basis, one gets futures up to 68c. Or, one can add cost to certificate, 7c, to get 71c. So an analyst can pick from 3 theoretical averages for new crop by which to make decisions. 68c, 71c, and 73c. Dec 20 futures are at 70c today, falling right in between the threesome. For our purpose, cotton is fairly priced.
The cotton chart is boring and choppy, but there has been a reversal in the $. The spot index has reached between 2 previous highs of May 2017 and Sep 2019. Sentiment level shows 90% of traders are bullish, and a seasonal low arrives on 3/15. This week falls on a 34 count from the low of 6/24/2019, and 55 from the low of 1/28/2019. A star top has formed for this week, but confirmation of a reversal required a lower close next week.
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