The ICAC’s latest supply/demand is out, and the headline is that the K Street boys have lowered their average annual A again, to 103c. This price started at 115c, so K Street has carved off 12c from their highest forecast. There will be more to come. An average of 103c implies a range from 93c to 113c, with a futures range from 87c to 107c. Futures are thus trading 4c under the theoretical low for the year, and a bargain price using this measure. The futures high for the year at 94c is only 1c above the theoretical low.
Table below shows the new ICAC numbers alongside those of the Aug USDA. There is a massive difference of opinion for world end stocks as the ICAC is some 5.5 Mb below the USDA. Maybe this is where they get their loving feeling for such a high average A. Or they must be using the idea that the US sets the price, and with a tight carryout, the current price is much too low. The 5.5 Mb difference in world stocks is mostly achieved by a beginning stocks level in 2012/13 that is 3 Mb below the USDA. The ICAC has cut 2013/14 world use by 1.2 Mb, and had they not made this change, their end stocks figure would have been 6.7 Mb below the USDA.
Jimmy Rogers remains steadfastly bullish on gold, as does Marc Faber who predicted it would bust through $1920…………There is discussion in China about allowing farmers to sell land usage rights, which is causing ag related stocks to move higher. All land is still owned by the government, but there may be something akin to water rights here, giving Chinese farmers value for rights to farm specific acreage.
Varner View
We note the ICAC high forecast for the average annual A, and also note that today futures made a new low for the very young market year, as did the A. Going forward, this year will be one in which the US market must stay high enough on other world growths so as not to cut into a carryout that is already too tight. That may mean that spreads never go to carry, or the basis remains high, or some of both. Merchants will have a devil of a time all year selling cotton, as they will be unable to purchase cotton from farmers, hedge it on the board, and sell whenever they get a good price down the road. The board remains the best price, and will stay that way until harvest fills thepipeline…………We are looking at selling Dec in the 8550 to 8600 area. See tech.
Technicals
The 89 and 144 day averages converge at 8570. A positive trend line beginning at the Nov low then crossing the June low crosses today at 8580, rising about 5 ticks/day. A bounce into this resistance would be about 350 points up. Traders and farmers should be alert for selling opportunities given a rally of this amount. We are no longer looking at the gap at 8865 as a reasonable selling point.
