More Cuts
Locals on the Llano Estacado are convinced more cuts are coming, and the market believes them. Price discovery appears to be shooting for a 5.5 Mb carryout, and a 31.4% ratio. This carryout represents 3.8 months of usage, which would take the US to Thanksgiving before theoretically running out of cotton.
The spot price of 75c is what we would call the beginning of the beginning of price rationing. The old crop/new crop spread is already at a level that indicates rationing, and 75c on the board will begin to pinch a few mills. 80c is really where the hard pinch lies, but there will be some push-back now that 75c is the benchmark.
One indicator of direction for cotton is the Aussie $. This commodity currency had a minor low on 9/25 and 11/02, and one can see cotton followed this market. Both markets now are at 75c, with no top in sight.
The $ is on the assist with the current rally, as it is teetering on a 32 month low. The seasonal for the $ is down to 1/02, opposite that of cotton which is + to the same date. The other variable much in play at this time is the level of cotton vs corn and soy. A few months ago cotton was much behind the 8 ball, but now is perched in a cluster of row crops with similar profitability. All 6 crops: corn, soy, sorghum, rice, wheat, and cotton – provide a profit. Rather than losing acres to other crops, what is most influential for cotton is the weather on the Llano Estacado into spring.
Technicals
75c is turning out to be a minor impediment to the bull, much like 66c and 73c. A pair of lows were at 75c in 2017, another pair of lows in 2018, and a gap down in 2019. The seasonal for cotton is + from 11/21 to 1/02, and this has been good for +3c since. The long term Fib count from the Jan high was due Mon, and so far this timing event has not signaled any reversal or top pattern. A bid at 7450 supported Mar since Sun night, and that is seen as near term support. A close below 7400 would be the first indication of a tired market.
