Sounds like a reunion of an old rock band. On 12 Aug 2013 the Dec contract spiked to 9372. Last night, the Dec spiked to 9373. Too much coincidence here to ignore. Supply/demand characteristics in the 13/14 year were vastly different from this year, and the market had its own reasons to move up from 69c to 93.72c then. Demand then was a midget compared to this year, but carryout was dangerously small at 2.35 Mb with a ratio of only 16.4%. The carryout projected by the USDA for 18/19 is more than double, and the ratio is a dime higher.
Not only was the US balance sheet razor thin 5 years ago, the Chinese had gobbled up nearly 63 Mb in their stocks. The following year stocks would swell to 67 Mb, making supply scarce in ROW. This years surge to the mid 90s is partially based on weather issues, but mostly on the idea that China will ramp up to 15 Mb of imports in a year plus. Traders do not believe the current USDA supply/demand numbers, and are throwing out some extremely low carryout projections.
In order for this year to match the carryout ratio of the 13/14 year, production would have to drop to 17.5 Mb, holding exports constant. Or exports would have to rise to 17.5 Mb. One or the other, or some of both. Traders are assuming an exceptional drought for TX, or exceptional exports. Sales have eased back in a seasonal timing, and even though the W TX drought has persisted, it may be early to destroy that crop on 30 May. We think the market is drastically over-priced, but thought the same when it reached 87c for the 3rd time. Being wrong is one thing, but being run over is another. And here is one thought for a farmer cotton is best crop on the board for new crop; and the next new crop; and the next new crop. Think about a triple hedge and be able to grow cotton at nice profits for 3 years in a row.
Its the dj vu thing for Dec at 9372, but the July has also gotten within a penny of its 4 year high of 9735. Dec 13 spent 40 weeks from early Nov 2012 to reach its 9372 peak. The Dec 18 has spent 41 weeks from the low last Aug to reach the same peak. Any price above 9750 spot and 9372 Dec will mean this market is getting back into the record price levels of the early 2010s.
As always, please use protective buy and sell stops when trading futures and options.
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