The Rabo View
A mini sell-off hit the soy and corn markets, but on news that was hardly new and meaningful. Soy will need more bona fide bearish news other than a temporary poor crush in China, or the fact that this country routinely switches to Brazil for soy at this time of year. Cotton came under pressure not so much from grains, but from rising 4c in 6 days with no bullish input.
Rabobank just released a report on ag markets, and a price forecast for all. Any ol' analyst can be bullish or bearish, but its a rare thing for a few to put out a price forecast. Their avg price by quarter: 4Q(20) = 66c; 1Q = 65c; 2Q = 70c; 3Q = 68c; 4Q = 72c. Mar futures today are +7c vs Rabo now, and +8c for 1Q. May futures are +4c above Rabo in 2Q, and July futures are +6c above Rabo in 3Q. The Red Dec is nearly equal to Rabo for 4Q.
We find much to agree with in regards to Rabo's price avg forecast by quarter. The only caveat is that Rabo used the current balance sheet to project price, and the market is defying those numbers. By our own work, the balance sheet must shed +1 Mb in supply in order to justify prices in the 70c/75c band. That could still happen, but a carryout of 5.75 Mb would merely justify 75c, not increase it. As for trading, we opted out of futures on the break above 7300, but would buy some Puts in case this was yet another head-fake and false breakout. Cotton is notorious for that.
More mixed tech signals. Spot charts have all been stymied at the stiff resistance of 7300, while Mar, May and July all went through it, then did a mild reverse. Going back to the major timing events of late Oct, the reversal at that time looked legitimate. To muddy up the tech picture more, the seasonal history is bullish now into 1/02, but the high yesterday on the Mar chart shows clear divergence in momentum with the high of 10/28.