Above title is in quotes as we got this from a wise cotton trader in Florida. Our addiction to USDA reports must be viewed with the fact that the USDA has almost never gotten exports right; and they somehow lost 400kb of US cotton this summer; and changes in world stocks have come often and in chunks of as much as 4 Mb. As analysts, we all blow estimates from time to time, but the USDA has been particularly tepid in making changes other than simple static forecasting and trend projections. In other words, nothing out of the box.
We read Judy Ganes cotton research paper today, and have always thought Ms. Ganes to have some pretty good insights on our crazy market. She mentions poly fibers and how difficult it is for cotton to win back that portion of demand, especially considering cotton’s volatility in recent years and premium over poly. Synthetics have gone “high fashion” according to Ganes, and we have to agree on that in spite of our own loathing of the stuff. Cotton has been soundly beaten in the sports wear arena, even though poly absorbs not a drop of sweat and feels like wet plastic wrap against the skin. Ganes also says this year’s harvest pressure is likely to be postponed a bit, due to a late crop, some recent rains, and smaller acreage.
Varner View
Cert stocks are now 35kb, up from 11kb a few weeks back. This is still a tiny figure, but it has surprised us that someone can get cotton to the board so early in harvest. With peak harvest still ahead of us, one has to wonder how much cotton will find its way to the board when large quantities are available. The best price in the US is the futures market, so expect cert stocks to begin building at higher levels than current. With Dec 80 under Mar, there remains another $10/b in carry, so the board is a strong magnet for high grades. We remain negative, and don’t have a good idea as to where to add to shorts.
Technicals
No change in the cotton chart, so here are a few ideas on the $. A seasonal low was due in early Oct, and it hit right on time on 3 Oct at 79.72. A near term bounce to 80.86 was right at previous daily lows of 80.77 and 80.90 in Aug. A close above this resistance would turn the trend back to positive. The chart shows a trend line beginning at the low of Feb 2012, touching 3 other lows, and crossing at last week’s exact low. There is a reliable 99 day cycle that has occurred +/- 3 days in May 2012, Sep 2012, Jan 2013, and June 2013. The next cycle is due 5 Nov 2013, and this can be either a high or low.
