Sales and shipments continue to be poor, at 37 krb old crop (China bot 14 krb), 100 krb new (Turkey bot 21 krb), and exports at 132 krb. With a partial week left in the year, it appears exports will miss low by 325 krb. If we assume total sales at 13.634 Mrb, subtract out total expected exports to get a rollover of slightly better than 1 Mrb. If we add this roll to new crop sales, the new 52 week period will begin with something around 3.364 Mrb. Cotton sold in the old crop but thrown into new crop for shipment makes the sales total impressive for the new year, but it is a reflection that sales cooled off dramatically in the waning weeks of old crop. Demand until early May was fabulous. Since then, it is very disappointing.
Supportive factors for cotton today were a good Durable Goods Orders (+4.2%), a dry west Texas forecast, and another small drop in cert stocks. Certs are now 233 kb, after an 18 kb decert today, and this is getting close to our guess of 200 kb after the dust settles from July notice period. Decerts have been large, quick, and attention grabbing, which may or may not have been the intent of the receiver.
Varner View
Grain markets have been in severe decline, as wheat went first, followed by corn, followed by soy. New crop prices today are much more equalized than 6 months ago, when corn was around $6.25, wheat was $7.75, and soy was $13.25. Cotton was trading 82c during mid winter, so there has been a huge shift in the profit bottom lines as cotton has eased up a few cents while grains have collapsed. There is actually talk of some countries in the southern hemisphere increasing cotton acreage in view of a much more competitive structure. Cotton does not need higher production to pile onto record stocks, but that may be what is in the cards as long as China sits on stocks. We are negative, and confused as to why cotton seems to be attracting new crop acres.
Technicals
Dec is teasing with a breakout of the upper resistance at 8600, via the trend line across recent tops. It would be typical of cotton to run stops then reverse, so traders should be aware of this possibility. Specs and funds are loaded on long side, and the trade won’t begin to accumulate physical cotton in size until late Sep at the earliest. The market therefore has about 2 months in which it can do whatever it wants, as any sort of certification effort to rebuild certs wont’ materialize until mid fall.
