The Goldman Sachs commodity index has moved sharply higher in the last 2 weeks, from 624 to 654. Energy, oilseeds, metals, cocoa and cotton have risen sharply. Spec positions in cotton have moved to a very large net long position, about 75k. Two other periods have seen the spec this long, those being winter of 2008, and fall of 2010. Open interest has surged during this rally, rising from 157k at the late June low of 83c, to 208k current. A 10c price rise has resulted in a 50k contract increase, so one can deduce that 5,000 contracts came into cotton for every penny up.
The commercial side (merchant, producer, mill, etc.) has added to shorts almost tick for tick for what the spec and funds have added to longs. The size and % of these positions is nearing extremes going back to the 2007/08 year, but history shows that they can maintain these levels for weeks, even months. The only real enemy the spec has is harvest in full gear, and because of a small, late crop, he can stay long without fear of any new certification.
Rainfall amounts over the Southeast were in the 2” to 3” range for AL and GA. There was one location in Florida that got 9”, but there is no cotton in this county. The Southeast needs a hot, dry finish to what may be the wettest growing season in 3 decades.
Chart shows open interest increase since the late June low. Shown on the bar chart is one possible Elliott wave pattern. The Sep 2012 high was major 1 up, and the Nov 2012 low was the major 2 down. Major 3 up ended in Mar at 8920. Major 4 down ended in June at 8172. From there, we have to count the high of 14 June as the minor 1 up of the major 5. Two down of 5 ended in a sideways triangle on 1 Aug at 8534. Thus, if any of this pattern is correct, then the current move up is 3 of 5. A small correction, then another new high would complete the entire move. Our confidence in this pattern is shaky at best.