What's a Fair Price?
Bulls have had their day from the Oct report, mostly on the back of declining world stocks, but not from the US. There is a loud argument ongoing that the Nov report will show a large cut in production due to Delta. But what about the other 3 storms? The USDA has had ample time to count bolls and assess loss, but we may have to wait a while to see how classing reports shake out to get a good handle on production. Our estimate in May was a flat 20.0 Mb, and since then Mother Nature has knocked off +3.0 Mb.
One other pillar of strength has been sales. This year compares favorably to year ago, with 8.9 Mrb on the books then, and 8.5 Mrb now. Two years ago the figure was 9.3 Mrb, and 3 years back it was 7.7 Mrb. Sales avg this year, after the roll week, is 215 krb, thanks a bunch to that week with 548 krb. Last year the 8 week avg was 165 krb. This year is ahead of year ago regards the first 8 weeks, but is behind in the cumulative.
Last year China had bought 1.6 Mb for reserves, and this year is at 2.1 Mb. Currently China's end stocks roughly match their consumption. If they decide arbitrarily, or for political reasons, to accumulate stocks above their use level, we have all seen what that can do to price.
One savvy analyst said his work shows that a 69c price reflects a much lower production, say -900 kb, and higher exports of about 1/2 Mb, so as to get a ratio at 33%. Thats one way to back into the idea, that today's price is correct, but the balance sheet does not reflect reality. Another way to look at things now, is that if the carryout will eventually be proven at 5.8 Mb, then Dec is a fair price at 69c. But what if today's balance sheet is about right? Dec is a 64c item. About that Red Dec – we encouraged farmers to hit 69.00c for 10%, and that price got executed. The first hedge for 21/22.
4 Fib counts cluster today, but all are from rather minor events. Today is 13 from the low of 9/25; 34 from the high of8/25; 55 from the low of 7/27; and 89 from the high of 6/08. Fri falls on 144 from the major low of 3/24. No top pattern made so far, and open interest has increased to 233k, highest since Feb.