Backsliding

agricultural, Charts, Commentary, News, Technical Analysis
Backsliding

Varner Brothers

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Title is a great southernism, used much in Cool Hand Luke. This can be used to describe Chinas reserve sales, which began on 6 Mar at 100% of offerings, and today are only 76%. Buyers took 105 kb yesterday as opposed to 140 kb the first couple days of the auctions. 

Table below shows Rabos price forecasts for 4Q this year, headed into 1Q 2018. For comparison sake, we listed todays price, their 4Q forecast, the % change, and a futures high/low given a 10% swing. Rabo was nearly neutral the grain complex, seeing only minimal positive gains into 4Q. Same for sugar. Same for coffee, with just a smidgeon to the down side. Then Rabo comes to cocoa and cotton, and we finally get a forecast that doesnt run static for 9 months. They see cocoa having nearly a +12% move higher, while cotton is forecast to move -8%. Nearby mill demand is exacerbated by Indias money woes, but longer term Rabo sees high cert stocks, and growing ROW stocks as catalysts for lower prices.

 

Varner View
Rabos price box for 4Q is 74.80/61.20. Todays price for Dec is dead even with this calculation of a high, given +10% from their forecast. Without weather mishaps in one or more major growing areas, both Rabo and the ICAC are looking for substantially lower prices down the road. We agree with Rabo and ICAC, but admit to being too early on this horse. We did not see the buying surge coming in late Dec, and it has only gotten bigger. For the moment, this market appears to be a very normal one, in which a low was made prior to Christmas, and a high occurs in March. Is the March high in place? We think so, as timing and measurements suggest likely target at 7930, and making that right on the seasonal. But if there is another Mb sale for the 4thweek in a row, then here we go again.

 
 

 

 


Technicals

Several indicators are coinciding to warn of a major top, but we thought the same thing during Thanksgiving when the market was 74c. The 5 Point Top pattern has confirmed a top, and triggered both sell entries. A seasonal high was due around 3/10, and the reversal of 3/07 is close enough. May has advanced from the Aug low an exact 62% Fib extension of the move from 2/29/2016 to the 8/05/2016 high. Two cycles line up to suggest a high or low was due in the last week. Sell May.

 
March 14

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