For the upcoming planting season in the Southern hemisphere, incentives now are to play more soy, a little more cotton, and less corn. May 14 soy is $12.20, which beats corn at $4.93. Cotton at 82.25c pulls itself in between the profit layers. Soy is still about $3/bu above cost of production, while corn is 90c or so. There is still enough of a question as to how northern hemisphere soy yields will turn out, so that crop has kept a fairly large weather premium with current price at $12.15 Nov. If US soy performs well in Aug, then the race to the bottom may be on for all 3 row crops.
Slowly but surely, row crops are inching toward parity with cost of production, as world end stock levels for soy and corn indicate either adequate levels or outright surplus, depending on one’s yield bias. Cotton has actually gained back some acres this summer in the Southern hemisphere, not by its own price rally, but by standing like a stonewall while corn and soy have been on bear trends. The early drought in Texas and large mid-summer decerts have been responsible for cotton picking up favor among Southern hemisphere growers.
Maybe we should all be grateful this rather long period of sideways action in cotton. Wasn’t too long ago when we were on the phone each and every night, and awoke often to put in orders and put out fires. Maybe things are getting back to normal, with cotton trading just above its cost of production. The more the grain markets slide, the more pressure will be put on cotton, in spite of its Chinese perpetual benefactors. The real danger for cotton is that if grain markets go to cost, then some sort of way cotton will have to trade low enough to discourage acres for 2 to 3 years until the Chinese hoard is reduced. We remain negative and bored.
Regards the dollar, a seasonal low is due this week, and this currency has been adhering well to seasonal patterns over the last few months. A trend line beginning with the Aug 2011 low, then touching the Jan low, then touching the June low, crosses this week near 8100. 8/01 (Thur) falls on a 34 Fib count from the low of June. This week is 180 calendar days from the Feb low. It is also 15 months from the major low of May 2012, and 21 months from the spike low of Nov 2011.