What looked like a short term burst of buying has turned into a huge demand surge. This years sales are half again as much as year ago, and there seems to be no slowing down. Cotton may be the hottest commodity in the world right now. Old crop sales were 317 krb, with India high at 88 krb, then Turk at 75 krb, then China at 48 krb. Shipments were huge at 458 krb. New crop sales were tied for best of the year at 216 krb. China took 132 krb, 61%.
Here are some of the theories as to why cotton is the worlds leading demand market. 1) Cotton has regained its status as a luxury, preferred fiber, and has beaten the allure of fiber made from crude derivatives. 2) World GDP is much better than expected, pushing up textile demand. 3) Asian countries face continued shortages, due to lower crops in the last 2 years, and destocking in front of Chinas destocking. 4) Chinas government will allow a much higher import quota, as mills insist they need high quality cotton to mix with years old stocks. 5) Up to 5 Mb in India and 5 to 10 Mb in China do not exist.
OK, we think we have this thing figured out. Old crop is worth 90c, and new crop is worth 60c. All one has to do is buy old/sell new and sit back and wait for the $s to roll in. Simple. One should also ask, which position do we feel more comfortable with, and the one that has better odds to work out? Hands down, new crop. The old crop has spectacular demand, but this comes at a time when synthetic fibers and chemicals are tanking, and the various conspiracy theories out there wont be known for truth or lie for months. It is far easier to focus on new crop, even after having to go through summer fun with weather, the chances are very high that the 17/18 carryout will be much larger than this year. Big question did the touch at -200 in the May/July spread bring forth a receiver with strong hands? It sure looks that way. And forgotten for the moment is weather. W TX got another nice rain, but whos looking at that?
There are two approaching negative seasonals, the first is sell CTN on 4/23, cover on 5/31. This is effectively on notice day. The 2nd seasonal is a spread, buy Z/sell N on 4/18, cover on 6/06. A year ago May 16 rallied sharply from 4/15 to 4/25, rising from 5917 to 6594. Following that peak, May sold off 550 points. Our guess is something similar this year, as it looks like cotton has made a temp low this week.
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