Outsides

agricultural, Charts, Commentary, News, Technical Analysis

The crop has mostly been planted in Australia, and cotton areas are finally getting what Americans call the planting rain. Amounts from to have fallen in eastern parts, and will continue for the near term. Cotton is planted roughly 100 to 300 miles inland on an area that straddles the Queensland/New South Wales border. Yields suffered here last year due to lack of rain, so this is a good event for the boys around Wee Waa and Goondiwindi.

In outside markets, crude has hung around the high $50s, climbing up from $42 last June on good demand, and better world GDP. However another industrial market copper has taken a tumble and just dropped to a two-month low. Precious metals have had similar declines. But the one market that seems to have sway over cotton more than others, is soy. Chart below shows 7 significant lows in soy since Aug 2016, and every one was in sync with a cotton low, no more than one day off. Highs and tops are not nearly so similar as lows, so whenever soy reaches a bottom, so does cotton.

Varner View

The coincidental lows for soy and cotton are not unusual, as cotton often follows one or more markets. Sometimes it is an industrial market, other times it is a soft, and other times it follows row crops. Soy is having a burst of buying off the low of 11/14 on weather issues in SA. Cotton had gone through a multi-week consolidation, then on 11/14 it lifted off with soy. This type buying has to be attached to large spec and fund type trading, and there is little doubt that the power lies with soy. The US cotton crop is worth $7.4B, while the soy crop is worth $44B. Seasonal history for soy indicates it normally moves higher into late Dec, on either weather or demand, or both. The next time it makes a low, better take notice.

Technicals

Todays low stands as the first support level, 7214. Now a few words on soy, as it looks as if this market has a leash on cotton. An upside gap occurred Monday at 997, so the uptrend depends on this remaining open. Current resistance lies at a minor double high of 1015. Seasonal track is positive in the last 15 years, but 3 of the last 4 years a low was made around year end. Momentum is very positive, and there is no sign of a top.


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