There is some chatter that after W TX low mic cotton arrived at some mills in Asia, some of it did not pass the smell test. This may be part of the reason for the large cancel from Pak today of 116 krb. That figure busted the sales number (180krb) from its normal perch at +300 krb for the last 10 weeks. New crop sales were ok at 29 krb, but were lowest in 21 weeks. Shipments were the good lone ranger of the numbers, a stellar 512 krb.
The $64k question is whether this week is a one-off, or whether the seasonal peak in demand is behind us. Our guess is that history repeats, often enough, and that demand has reached a timely peak. That doesnt mean a collapse is imminent, as current numbers are reaching for records, and shipment pace is 450 to 550 krb for 6 weeks. The shipment number is what the USDA is glued to, so we best monitor this for indication of future report estimates.
Varner View
The hit to sales does come at a prescient time, as it helps identify the normal seasonal demand peak. However, it does not throw the market into a bear mode all by itself. Numbers across the board for sales, shipments and new crop sales are at or near record, so a cooling off only causes the bull to stagger and stop rising. It will take more time to see how demand shapes up for 4Q. On the weather board is a 30% chance of rain in Lubbock on 4/20, amount 3/10. If this was for 3 it would matter. A special report today outlined the California reservoir profiles, which are 40% to 50% of normal. New crop Dec has jumped 3c off the April low in response to weather forecasts. This years first weather scare started on 4 April.
Technicals
Since the 3rd week of Feb, July has traded in a 750 point range, and is currently just a few ticks above the middle of that range. Moving averages are becoming flat, from 8145 to 8265. Two negative seasonals begin in April, one on 4/08 and the other on 4/23, with lows due 5/01 and 6/06. Our bias is that the low of 4/04 was the A leg of a large correction, and the B leg is working now. If it reaches a high today or soon, the C leg begins with targets likely below 7850.
As always, please use protective buy and sell stops when trading futures and options.
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