Grain stocks were reported slightly higher than market expectations, sending Chicago markets lower.These reports, and the recent action in cotton, has once again put new crop cotton prices on an upswing against competitive row crops. July cotton vs soy traded at 0.62 three weeks ago, and today is 0.69. The highest level for this specific ratio since Mar 2012 has been 0.71. July cotton vs corn 2014 today reached a new contract high at 1.82. For planters moving into the Southern hemisphere season, cotton has moved back into rough parity with corn, but those two remain behind soy as the profit leader. Stacking up 6 major row crops according to profitability at today’s prices, our quick analysis shows: #1 = soy; #2 = wheat; tied #3 – #6 are cotton, corn, sorghum and rice, in varying spots depending on local issues. The important thing to note is that ALL crops are profitable, and cotton has crawled out of the #6 position it was in this time a year ago.
Brazilian acreage at one point in August, was thought to increase as much as 20% on the spike in Dec to 94c. That price spike didn’t last long, but hopefully a few Brazilians reached out and put down some hedges when July 14 moved over 8600. That contract is there again, and we are taking a hard look at getting more new crop hedges in place, here and now. Several sources now suggest that Brazilian acreage will increase by 7% to 10%.
Our spec shorts have been relieved of pain, but we have every intention of getting on more producer hedges if cotton keeps rising. Indian sources say that the crop was largely not open enough to cause too much damage, even though there are fields that did lose quantity and some quality. We may begin focusing more on the back end for spec shorts, as well as producer hedges, and stay out of the front end. The Chinese seem to be on their way to a third year of buying and stockpiling cotton, so in the next few months they may be able to keep nearby prices supported. But at some point this dam gives way. When that happens, there will be a deluge.
There are too many techie-types out there with similar chart tools we have, and we must have seen the 8865-8886 gap mentioned 30x since last week. That target is so obvious and visible, one wonders if it has gotten too much press. Today’s Mar and July 14 charts made a pretty nice star top pattern, but all trends are very positive. For the star to be confirmed, the market must open and close lower tomorrow. Seasonals are mixed.