Sales dropped to the lowest level in 18 months for this market year at 52 krb. China was high at 18 krb. New crop sales were ok at 152 krb, lowest in 6 weeks. Thai was high atw 60 krb, then China at 35 krb. Shipments were good at 421 krb. The target average is 356 krb. So far so good. It does appear that the seasonal peak for demand was on time, but from an historical level. Shipments have also peaked, but remain large enough to make the target, and then some.
The larger question is whether the 27 month period of record sales has been due to record textile demand, or whether the world has been through a massive shift in inventories. Bulls are adamant that textile demand is through the roof at record levels, but evidence of this is scant. Asian mills have all ramped up purchases of cotton in recent years, but offtake for textile products does not seem to match the buying of raw materials. Then there is the perpetual theory that several million bales in Asia are phantom. This theory lasted has longer than it takes to grow 3 cotton crops, and is likely to be around for more years, whenever it is convenient for the bull to grab for it.
CWG removed most of the forecast rain for W TX next 7 days. Total now is trace to .
Varner View
Spread activity has dominated trading recently, with rolls forward of spec longs to Dec, and outright liquidation of bull spreads in July/Dec. This wild horse spiked to +650 just 2.5 weeks ago, and today is +225, matching the lowest level in 4.5 months. At only $11/b invert, does this mean the perceived critical tight situation is over, and that mills are now covered enough to make it to new crop? Sort of. The invert, which reached +900 at one point, has been the markets most severe and efficient method of rationing. Rationing does take place above 75c, but only recently has the market reached the hard rationing level of +80c. Thus, the market has built itself rationing via the spread first, then the current price spike. The resultant slide in sales is proof that rationing works, and is well in progress.
As always, please use protective buy and sell stops when trading futures and options.
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