What may be Tropical Storm Karen in a few hours is tracking toward Tallahassee. The northeasterly direction will take storm directly over Georgia production areas, and skim Alabama, western Florida. The system would then cross into SC before moving back into the Atlantic. The market has moved from 84c to 88c on fears of damage to the SE crop, and is fretting that too much rain will “string out” cotton that is open. Using last Friday’s open bolls report, and interpolating a bit, here are our figures for open bolls in SE states when Karen passes through. Alabama = 65%; Georgia = 75%; N. Carolina = 77%; S. Carolina = 65%; Florida = 72%.
The carryout is tight enough to put the market on high-sensitivity alert for passage of a storm that is just barely big enough to have a name. A 2” to 3” one-off event does little damage, but a 6”+ soaking can make a mess of grades and cause cotton to fall to the ground after hours of rain. These things are usually selling opportunities, so we’ll have to wait until next week to see how much rain Karen puts down on Georgia.
No sales report today, and the word is that the supply/demand report will be kicked back also. Regards the Red Dec, we are taking more interest in this contract as it has risen above 8000, and like the old crop months, is actually trying to claw back some acres from grains. Dec 14 is up nearly 6% in 2 months, and is not nearly as discounted to Dec 14 corn as it was then. Planters should lean into some hedges, as there is plenty of reason to think that prices could be much lower if China does decide to begin backing away from their record inventories.
Dec has reached a 7 week high, but this time up is much different from the Aug rally, as spreads have refused to budge. The Aug move was even more pronounced as front months gained in large percentages relative to futures. This rally has seen almost no appreciation in bull spreads. Open interest has risen to 206k, and is almost to the same level in 4 previous OI peaks. One of those peaks marked a low (Oct 12); one marked a high and a small correction (Feb 13); the next marked a major top (Mar 13); and the last marked the Aug major top.