It was Faulkner when returning home from a non-combat stint in Europe during WWI, that Oxford locals called him ‘No Count behind his back when he wore his uniform around town and feigned a British accent. That term should be used for today’s report as the USDA simply wiped out 330kb of old crop cotton in the “unaccounted” column. We suggest this column heretofore be renamed Count ‘No Count so all will understand that the USDA has trouble counting bales of cotton. Moving on, the production took a huge hit, with Texas yield dropping below 600 #/a and surprisingly Alabama pegged at only 768. Maybe Texas is really that bad, but we are stumped on Alabama being so low.
Abandonment in Texas was 42%, which was above our figure of 35%, and therein lies most of our error in pegging the crop size. It appears that those who called for abandonment on the Llano Estacado at levels of 2 years ago have been proven right. Our abandonment was running 67% but others were much higher at 90%. North Carolina is a puzzle, as this state has complained about too much rain, as has Georgia. So Georgia pops out a 941 #/a and NC is only 775 #/a? Doesn’t figure. Moving into exports at 10.6 Mb, we are in perfect agreement, and think this figure will keep sliding south as sales and export numbers continue to disappoint. A 10.0 Mb export number is what we are musing.
The cut in the Chinese crop by 1 Mb to 33 Mb was expected. Now lets watch for India to pop out the topside.
Varner View
The biggest surprise today came in price action, as the triple-dipple top at 8950 was taken out, and not much happened. If we had been asked to price in a carryout of 2.8 Mb, our guess would have been 92c, or higher. This suggests the market either does not believe the 2.8 Mb carryout is realistic, or it is looking over at that unprecedented world carryout, which is dumfounding. There is no price model that exists that can correctly digest this figure. Since the overwhelming level of price discovery will be done by Chinese political moves, its very difficult to put some fundamental price boundaries on this market. Our tech target says 91.80c for the moment, and that is where we will enter some farmer hedges and spec trades.
Technicals
Momentum is positive, and at the moment it appears the triple top at 8950 is giving way. The best target for this move is 9180, which is a negative trend line on the spot chart. Total volume was 25k, which is right in the middle of extremes. The only other resistance comes from the “most active” chart, which is the continuous contract with the most open interest. It shows a double high just above 9000.
