Crude oil and the SP are stuck on each other, one pulling the other ever higher. Cotton and copper are often in this industrial group, but not now. Neither of those two markets are following the other more powerful leaders, as cotton correlation with crude and the SP is only 50% or so. The SP and crude since the major lows of June 2012 have been highly correlated, and especially so since lows this past late June. Cotton may get a little tag-along from these two headliners, but is pretty much on its own now.
Sales were moribund, with China half the old crop and a surprising bid from Brazil for 20k of new crop. Exports were again very disappointing, and we still have no reason for the plunge in this category the last few weeks. Where has the demand gone?
With good rains in Texas this week, analysts are left trying to discern what is still out there. Conditions should rebound sharply on the next report, but the hard part will be figuring out each district’s abandoned acreage. Some figures we hear thrown around for the Llano Estacado are worse than last year’s severe drought.
We sold into the June surge, then covered shorts too quickly, and made some dumb mistakes actually buying Dec at 8600 on June 20. The last foray was to short a very few when Dec traded 8650 to 8710, and we like selling the 8550 area now. If Dec were to trade +8600, we would get aggressive with shorts. There may not be much in this idea, but after these Texas rains, the US crop is not threatened anywhere. If grain markets get a little rain over the next 2 weeks, then they are expected to move lower toward average cost of production. Cotton is still above its cost, but when the seed rebate is added, there is a fairly decent profit structure. Expect lower prices headed into Aug.
DEC has thrust itself into a cluster of moving averages: 13 day = 8520; 34 day = 8544; 55 day = 8525; and 89 day = 8570. There is a negative trend line off tops of 6/17 and 7/10 crossing today at 8625. Sell against this trend line, or the 89 day avg.