We hate polyester. The feel, the shine, the kinking of the threads with the least wear. Petroleum derivative-based fibers should be used for packaging, auto seat-covers, outdoor tents, swim suits and flags in all weather. Everything else should be made mostly of cotton. Polyester underwear would seem to be torture. But the world appears to be going more and more for these bastard phony fibers, and cotton is losing ground steadily. Recently we uncovered some stats showing this relationship over the last 2 decades, and presented them in the form of total world cotton use, vs total world textile use (see chart).
From nearly 50% of total fiber use 20 years ago to only 31% today, cotton has given ground to just about all of the synthetic fibers, and has hardly mounted a challenge. The ICE-caused spike in 2008, plus the huge price surge of 2010 have encouraged more mills to use more poly in recent years to get away from unworkable costs. Cotton’s world use peaked 7 years ago at 122 Mb, and is languishing at 108 Mb today as poly keeps moving up with population gains. One, of many, reasons world cotton use is flat-lining is that China is forcing its mills to use a product priced at $1.40/#. With 1/3 of the world use, this alone is keeping a lid on rising consumption.
Varner View
The forecast is dry for the Llano Estacado, and cert stocks have drifted down to 140 kb. There’s the redundant bull side of cotton. China is adapting a VAT tax on all items, including imports of 6%, and this would appear to be negative for cotton, but implementation of the tax is a question of time. We remain frustrated bears, but are no more so than the bulls. There is one bullish position we would entertain, via the long Oct/short Dec spread. With a late harvest, and a severely depleted south Texas harvest, one would think that hardly any cotton will be available for tendering on the Oct. But with only 275 contacts in OI, if one gets in the trade, he better be ready to sit. The Oct would appear to be much more of a squeeze item than was the July, but this is a contract not traded by Southern gentlemen. Leave this to the beasts of the east, or those crazy Aussies.
Technicals
The longer this market goes sideways, the bigger the move when it breaks out. There is nothing else to add.
