Acreage numbers were released from the National Cotton Council convention in Fort Worth, and they were nearly the same as Cotton Grower Magazines last month. Total plantings are 12.825 M upland and 254k pima for total of 13.1 M. Their economist used abandonment of 15% and yield of 842 #/a to get production of 19.4 Mb. On first glance, the acreage seems a little low, yield the same, and abandonment a little high. Abandonment this year, last year and two years ago was 10.2%, 5.6% and 6.1%, but if one is using an average base of 7 to 10 years there are 3 in which the Texas drought pushes the average to extremes. There is similar data for yield in the last decade. This years record of 900 #/a appears to be a breakout above trend, but just two years ago yield had collapsed to only 755 #/a due to Texas. The 4 states of TX, NM, OK and KS combine for 62% of US acres, making for high yield and abandonment volatility. The present drought in these states indicates analysts will have a tough time getting production right.
The market has made a low, but has refused to kick into a reversal. A normal seasonal high based on post-Christmas demand comes in early Mar. But this market is far from normal, making a major high in Jan. Bulls have a 20 month demand surge with them, along with a drought in the Southern Plains. Bears point to the Feb export figure and higher acres next year in the US and world. We prefer to wait and get a little closer to FND before committing to a trade.
The high for the last 5 days is 7752, so that is the easily recognized obstacle that will confirm a turnaround if cleared. Volume was very high on 2/08, which often confirms a top or bottom. Open interest has dropped by 50k, or 15%, from the all-time high, and this could keep going into FND. OI made a low of 223k in front of Dec notice, but this level seems to be out of reach for this liquidation. One tech-savvy trader opined that May was making a head/shoulders formation, the left shoulder formed from 12/22 to 1/10 at a price from 7700 to 8000. The head is 1/11 to 1/26, and the right shoulder is from 1/31 forward. We never put too much faith in these, as the chart usually turns into something else.
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