Soy Coattails Soy bottomed first in late Jan, then cotton got back on the bull ride. Since then, soy is up 115c, or 8.8%, and cotton is up 13c, or 15%. New crop soy using the same parameters is up 134c, or 12.2%, and new crop cotton is up 10c, or 13%. Cotton has thus not only held its place in the battle for acres, but has inched up a notch or two vs soy. Its easy to calculate a gross income of +$1000/acre for cotton, and a net around $300/a. Back in December, the Dec 21 averaged 72c, but is now 15c, or $75/bale, higher. Depending on how W TX fares with weather, we could see acres rise this year.
The support cotton gets from soy and corn is more complicated than a simple spot price ratio. Soy's balance sheet doesn't get 'worked out' in only a year's time, and our guess is that this market will stay at a very elevated price until the peak weather period is past in early Aug. Soy's balance sheet doesn't get comfortable even with an additional 6 M acres, and if weather is poor, or China keeps the restocking going, then this market will see bottle-rockets and limits and such in the next 6 months.
Some traders believe that the carryout for this crop year back in spring at 7.2 Mb will effectively be cut in half by the time spring arrives for the 21/22 carryout. That is a huge change in a year's time, and the anticipation of that has pushed price +90c. The issue with calculating a fair price for cotton with a new crop ratio of 21% is that currency levels and economic vitality has to be factored in. Cotton had near 21% ratios in 11/12, 12/13, and 17/18. High/lows were 114/66, 94/69, and 91/60. The 114c high in the 11/12 year came early and was more reflective of the previous ratio of only 14%, so we tend to disregard this price. The other 2 highs at 94c and 91c are very close to the current price, and unless there is a big movement on the balance sheet, we will stick with the idea of a high in the mid 90s, with some wiggle room.
Repeating some timing events coming up, a 144 week Fib count from the major high of June 2018 is due the 3rd week of Mar. The major low in Mar 2009 occurred in the 2nd week of Mar, which is a 144 month count. The major low in Oct 2001 occurred in the 3rd week, and Mar is a 233 month Fib count from that low. Lastly, the major low of a year ago occurred on 30 Mar