New numbers from the ICAC show world end stocks at 88.3 Mb, about 2.5 Mb below USDA. This is a much closer difference than that of a few months ago, when there was as much as a 6.5 Mb difference. If the USDA cuts Indias crop by 2 Mb, then there will be hardly any space between the two. More interesting is the ICACs average annual A index, up 3c from last month at 72c. If one adds and subtracts 10c from this average to get a price range, the box is 82c/62c. Equating futures to the A we subtract 6c from the price box, to get futures high/low of 76c/56c. According to the ICAC and our own interpolation, the spot futures currently is near the theoretical high of the year.
The commentary on the average annual A estimate says based on end stocks to mill use ratio in the world-less-China; and on the ratio of Chinese net imports to world imports. This calculation has been effective in recent history, but one has to accept that the numbers on the balance sheets are more or less right. The explosion in US sales has accompanied world demand upwards by 4.5 Mb in just a few months, which could cause some large revisions on the balance sheet. If one could believe and depend on the ICAC numbers, then a price near 76c would appear to be near the high of the year. But unprecedented demand is putting huge question marks over the balance sheet. Our broad view is that the market will have made its high in the first part of the year, and if sales show a little, the low will come in spring.
The low of today and Friday is 7235, a close below there would be first indication of a top. Seasonals are positive into 2 Jan, but have been upside down for the last few weeks. Volume has been decreasing on the rally, but open interest has been gaining. Vol on Fri at 25k was lowest in several weeks. The charts for continuous spot and continuous Dec will show large gaps on the roll, which is in 2 days. The Dec/Mar spread will open a 200 point gap, and Dec/Dec will open nearly a 400 point gap. These will be downside price gaps, and will create a negative view after Wed.
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