Even though there are hardly no cert stocks, Dec cotton (CVZ14:CME) is behaving normally and typically going into notice. Until the most recent, export demand has been spectacular, but in the last 5 weeks it has mostly been poor. The average needed to make the target is about 115kb, and the sales have been erratically as high as 190kb to as low as 8kb. The other 3 weeks have been around 75kb. This drop off in demand means that it may be possible to tender a little cotton in the latter stages of delivery.
The cotton vs any and all grains ratios mentioned yesterday may have hit some near term lows. Cotton is a break-even venture at best with Dec 15 at 65c, and most certainly loses when compared to the 5 major row crops in profitability. Soy, rice, sorghum, corn then wheat, in that order, beat cotton a lot to a little. Rice may become the darling of new crop, as the target for new crop is set at $6.35/bu, or $13.90/hdt.
Varner View
Sell stops exist in Dec at 6200 and 6080, and in Mar at 6080. We think chances are good that all of these stops get hit by FND, and possibly as early as the end of this week. The current price is where cotton crashes into the Loan, and will below average export demand, bids for equities and physical will slip. This year will be one in which cotton first goes into the loan, then the pipeline gets thin, then equities get bid up, and then go back down. One pump up and a pump down, over and over.
Technicals
Seasonal trend is working, so expect a low the 3rd week of Nov, ideally 21-24 Nov. Momentum is negative and cotton is not close to being oversold.
