Corona No Problem for Cotton
Easy to see how cotton made yet another new high today, with positives in Chicago row crops and a negative for the Buck. Cotton has reached, or moved above, prices last seen before the Corona breakdown. Impressive. Its as if Corona never happened for the surging row crops. Dec made a 10 month high today, as did Mar. Spot did better than that, hitting a 17 month high. As this was written, Dec remained at or just below multi-month resistance at 72c.
Its too early to matter, but the new crop ratio based on Mar 2022 contracts shows cotton has reached that month’s highest level vs corn and soy. Cotton has reached a broad zone of relativity in what one could term the “mushy middle” of ratios with soy and corn that go back years. Some analysts and traders have suggested cotton will lose acres next year, but if it does, it will be due to other issues, such as persistent drought in TX. The last 4 years Dec averaged 70c, 72c, 80c, and 72c during the winter decision time. Planted acreages were 12.12 M, 13.74 M, 14.1M, and 12.72 M. Our guess is 12.5 M, but most important is what happens in TX.
Markets more often overshoot “fair” value than not. The 48c major low was definitely an overshoot, brought on by panic and fear. The current price of 72c is much too high for the current balance sheet, and sentiment has reached a level not seen in several years. One has to wonder what cotton does if the USDA does not do the bidding of consensus thinking, which is cutting production by 1.25 Mb and taking end stocks to 6.3 Mb. Our short Dec at 66c was run out by the recent +7c surge, but we like the setup next week of a high built on month end buying, bullish balance sheet expectations, and tech timing mentioned below. The $ must also cease its 4 day drop. A seasonal low is due for the $ late next week. Imagine that.
Next week is critical for long term timing events. Tue, 10/27, falls on a Fib 144 count from the major low of 4/02. Fri, 10/30, is 147 days from the 4/02 low, which matches exactly the number of days between the 9/30 major low to the 4/02 low. Even more interesting is that the time span from the 9/30 low to the 4/02 low can be broken into 91 days to the Jan high, and 56 days to the Apr low. These are exact Fib ratios of 62% and 38%, and are themselves almost exact Fib counts of 89 and 55. A seasonal high is due 10/26.