Cotton Daily: Varner Brothers

ag, agricultural, Charts, Cotton futures, Softs
 
 
Split Decision
 
 
Thought Of The Day

              “I can be of incalculable benefit to Texas.  If I am executed, I will just be another dead Mexican.”  Gen Santa Anna, taken prisoner after the Battle of San Jacinto

                
The US SD report was bullish, while the world report was bearish.   A  trader can pick his position, then choose which report to cleave to.  The production finally took into account classing data that showed late crops in TX, KS and OK were not all they were cracked up to be.  Now all thats left is to concentrate on exports, which could still swing either way in the current volatile environment.  The world end stocks got bigger, with the USDA getting ahead of the Wuhan worldwide panic, and whacked 1 Mb off Chinese consumption.  Fair enough, and one could argue for more.  Recall it was just a few reports back that there was a “4” in front of use.  And in the not too distant past there was a world consumption figure near 127 Mb.  Days gone by.

The new US carryout ratio of 26.2% is lower than year ago, when the futures low was 6023.  The current spot price of 6130 is only a few ticks above the year ago low, and in a normal situation, cotton would be an extreme bargain.  This black swan season is wiping out whatever passes for normal, as traders are bracing for lesser use of just about all commodities.

The world end stocks of 83.4 Mb, and the ratio of 70.5%, is definitely not friendly, but the US balance sheet always trumps when it comes to price discovery.  The world ratio is slightly higher than the last 3 years, and the carryout is 2 to 3 Mb larger.  Lows for futures in the last 3 years are:  65c, 67c, and 60c.  If not for the Wuhan hysteria, cotton would be best buy on the board.
 
Varner View

Does one ignore the outside noise and dive into the long side?  Or does a savvy trader wait for quieter days?  We continue to believe the virus is a normal event, but the hype and fear and government actions have caused a very real economic hit.  Most governments want to be seen as “doing something” and that something often causes unintended consequences.  In spite of what was a roaring economy, Wuhan will take a slice off the demand side of a lot of commodities.  We have been booted from some longs in May, and are still holding Call spreads. 

Technicals

One can use the low of Mon and the high of Tue as a price barometer for both sides.  The market is so far undecided if the low of 2/28 is the final corrective low, or if the current move is the final 5th down.  A couple of unique timing events occurred on Mon, but so far there is no reversal or bottom formation.  The next seasonal is to sell on 3/24, cover on 5/27.
 

We clear and execute futures and options transactions for the cotton and fund industry at very competitive rates. Interested in setting up an account to trade or execute with us? Call our office manager today to discuss!
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