“Crawfishing” is a term in Louisiana that means going backwards, or retreating, or taking some words back. It appears China is into its own form of crawfishing, with reports of a 5% mandated cutback in excess capacity in several industrial areas. This comes after an announcement a week ago that said there would be a 5 year ban on construction of new government buildings. One analyst went so far as to opine that the much agreed upon 7.5% GDP rate was really more like 5%.
Cert stocks dropped another 74kb, sliding beneath our target of 200 kb, to a mere 160 kb. This is quite a drop from the 650 kb level just a few weeks ago, but comes at a time when demand has been tepid at best, and mostly poor. A reasonable guess is that the owner sold the certs before early May. A lot of traders have been eager to get on the bull side of cotton on a mid summer weather play, but since that has not materialized they seem to be changing horses but going in the same direction. They just want to be bullish at 85c. We recall watching cert stocks drop down to only 3,000 bales back in pre-historic times (early 80s?), while the price drifted down to 52c. Like the Old Man used to say, if nobody wants it, a hundred bales is too much.
We looked at correlation between cert stock, and there are brief periods when there is an inverse relationship. But this is rare and those times are probably hoarded and fully utilized by merchants holding the down cards. The bull case is that all of the certs come out soon, so the contract is uncovered. But if there was to be a bona fide squeeze, it would have to be in the Oct, and that illiquid beast is doing its best to trade at par with Dec. Traders that believe in the cert stock squeeze would be advised to put their money on the Oct/Dec spread, not the Dec itself. By the time Dec rolls around, there will be some cotton to shake loose for tendering……………For trading purposes, we continue to lean negative.
The resistance at 8600 has held, for the umpteenth time, and Dec has flopped back down to the cluster of moving averages around 8500, for the umpteenth time. The next 2 or 3 Mondays could be mid summer fireworks in grain markets, so being short cotton could be uncomfortable if grains catch hold of a weather scare. So far the summer has been very conducive to grains, and other than west Texas cotton, crops look pretty good all over. Seasonal trend for cotton is negative for next 2 weeks.