Spec funds love to roll longs when a market is inverted, but cotton is giving them some heartburn to roll from Mar to back months. Mar/May has slipped to -140, after a brief stop at -115, which was the low for both the spread and futures in early Apr. If there is such a thing as a chart support point for a spread, the low is right at -140 made in Aug 2019. This spread is there now, and is trading roughly 82% of full carry. Our bias is that Mar/May is more likely to rise from here, rather than drift down to carry.
There is a USDA crop report next Tue at 1100 cdt, and our work shows the carryout will be whittled down a little more. Both sales and shipment figures indicate a slightly higher level vs the USDA, and there may be a little reduction on crop size. Our guess is that carryout slips below 4.5 Mb, and could approach 4.0 Mb. Thats getting a little concerning, but is nowhere near the tightness of soy and corn.
The US is using and shipping right at 1.5 Mb/month, so a 4.0 Mb carryout implies 0 inventory the 3rd week of Oct. The market is saying shipping needs are well taken care of through this crop year, but then the Jly/Dec spread says there is an acute shortage during the transition period. This spread is today at a 450 point invert, as compared to old crop spreads that are pushing 75% carry. No cotton trader has ever said this market makes any sense, and spreads are downright baffling. Tomorrow we get another look at sales and shipments, and there is no reason to think the pace has cooled off any. The $ is having a good week, and is trying to make a long term low.
Mar has not closed above the 21 day avg since Thur, so that avg is seen as very near term resistance, today at 8090. There is a little resistance at 8150, and the 7985 level has held support on 6 attempts. Very tight nearby trading affair. The $ is in somewhat the same kind of action, as it has pushed timidly above resistance at 9100, and is resting just below a 2 month high at 9125.