Fort Worth

agricultural, Charts, Commentary, News, Technical Analysis

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.

Varner View

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.

Technicals

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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