Its difficult to imagine where this market would be had there been no 3 year drought in Texas. This event has decreased total supplies in 3 market years by 5 Mb at the lowest to perhaps 10 Mb at the highest. Rains that began in early June have proven too late for the crop on the Llano Estacado, and rainfall amounts in the rest of the state have seen rising deficits as summer progresses. We look forward to that year when Texas finally reverts back to something more normal……………Indian crops are faring well, except for the northwest (mainly Gujarat). This major production area needs rain, and at least one weather service says there is a 50-50 chance of rain next week. Central-Eastern areas of China have received timely rains this month to mostly alleviate drought conditions there.
This weekend means a lot to energy, grain, precious metals and perhaps currency markets, but not much for cotton. With no hurricane banging around in the Gulf, there is no catalyst to make this market soar or collapse. We expect a quite open come Monday evening, but the surprise will be that Obama lets loose with some missiles and outside markets go nuts.
Varner View
There was a story on some wire services that said the NDRC in China is proposing the country move to a system of farmer subsidies rather than simply stockpiling cotton. The Chinese seem to be pondering something similar to the US marketing loan program, but our guess is that if they do this, it will take many months of arguments between bureaucrats before this gets settled. If they ever do move to a direct subsidy, it could be a little friendly for cotton as this would finally allow mills to buy cotton at world price rather than the set price. There is also talk of removing import requirements and taxes, which would definitely be friendly…………….Market action today hints of a reversal, after an 11c decline. Problem now will be to identify a level the market can bounce to.
Technicals
Near term reversal action, from the support of 8221. This is a 50% retrace from the low in June 2012 at 7070 to the recent high of 9372. Moving averages stack up from 8570 to 8740. The breakdown gap is at 8865. Expect Dec to rally to one of these resistance points and fail.
