The recent rally was propelled mainly on Pak buying, and their 410 kb buying burst came as stories about infestation surfaced just before Thanksgiving. Several sources pegged the Indian crop at 31.5 Mb before the bollworm, and have chopped 2 Mb off due to bollworm losses. The USDA has the Indian crop at 30.0 Mb. Indian exports range from 5.9 Mb to 4.6 Mb, so if the bollworm losses really do occur, then exports would be cut.
Assuming India has lost about 2 Mb, then one has to determine whether to cut from 31.5 Mb or the USDA figure of 30.0 Mb. Crop prospects were very rosy until the bollworm issue surfaced, so it may be prudent to cut from the higher figure rather than the lower. Another consideration is what this country has in its carryout. The USDA calls it 14.6 Mb, which is a record ever, and a 50% ratio, 3rd highest all-time. If one cuts 2 Mb off this crop, carryout drops to a very average level of 12.6 Mb, fitting into a series of figures from 9.7 to 13.5 Mb since 2008/09.
In a world loaded with cotton at the end of the market year, a 2 Mb cut of some 91 Mb would be insignificant. However, this cut must be made from ROW, and therein lies the difference. The ROW end stocks would drop to 49.2 Mb from 51.2 Mb. This remains a record high, but the ratio falls to 41.5% from 43.2%. This ratio is 4th largest, and is the exact same as the year 2000/01. The high/low that year was only 6750/4340, and occurred during a period of overall low ag prices. Then there is the issue of whether or not a 2 Mb cut from ROW stocks is accurate. We got on the phone with a Monsanto PhD today, and found out all we ever wanted to know about Bt tech in India, and the soap opera involving farmers there. Turns out they are loathe to pay for the tech, often pirating seed for up to 3 years. It loses its effectiveness, opening the door for the bollworm. They are also loathe to pay for spraying once the bollworm is present, some do, some dont. But it is their option.
Until today, cottons daily low for 8 straight days was higher than the previous. Todays low was the first in 9 days to trade lower than a day ago. The rapid move up from 68c to 72c has slowed, but not stopped, nor reversed. Tuesdays low of 7100 would be first indication of a top.
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