Lots of Longs
Rabobank's "all ag" index, which includes row crops, softs and livestock, shows combined spec net longs at a record high. Same for corn, while soy is right at the old record. Chicago wheat is close to a record, while KC wheat is near the 60% decile. Cotton is at the 65% decile. Rabo sees cotton trading an average of 67c over the next 12 months, implying a box of 73c/61c, given a 10% +/-. That is a fair assessment, if one accepts the balance sheet as is.
Our "fair value" is something near 60c, but because of the gravity of the soy situation, it is doubtful that cotton would reach that level. The decision period for spring planting is a month away, and if soy continues to rise and ration, cotton will get indirect support. Soy's balance sheet can theoretically go to 0, so its got some work to do in order to turn off a few consumers. This market will therefore be a positive pull on the other row crops, especially once the winter decision time arrives.
The cotton/soy ratio on spot months is 0.59, and on the March 2022 contracts it is 0.69. There have been 5 times that cotton went to an extreme vs soy, all below 0.50. June 1973, July 2004, July 2008, June 2009, and July 2012. It is interesting that all of these extremes occurred in summer, most likely a weather event in the Mid West. Its a long time to summer, and our guess on this ratio is that it will push out to an historical extreme during a real weather issue in SA. In the next few days we will probe a little more into this ratio, and see what balance sheets both markets had during times when cotton was a shadow of soy's price.
The Mar has touched the 34 day avg twice in the last 12 days, both times that was the low of the day. This avg has been very efficient in supporting price since 4/22, as Mar closed below this avg once, on 7/24. The 34 day is at 7031 today, rising about 14 ticks/day. The 55 day has been an even better guage, as Mar rose above this on 5/14, and has never closed below since. The 55 day is at 6876, rising about 10 ticks/day. This avg coincides with the supporting trend line coming off lows of early Apr and late July. The trend line crosses today at 6900, rising about 10 ticks/day. A seasonal low is due Fri.