High as a Cat's Back
Cotton at 72c is not historically a high price, it is a little above an average 65c, and it is slightly profitable for a farmer. But what is historically high is the US futures market vs the AWP. A "normal" premium would be in the neighborhood of 5c to 17c, if there is anything normal in this market. Since early Oct, futures have climbed to a rather lofty premium of 16c to nearly 22c. This premium of around $100/b suggests other growths are simply not available in size for the time being, or that US cotton is somewhat scarce. Our guess is that this premium will drift away as the New Year approaches.
The $ has decided to break down after a tease yesterday, and is trading below the key low of 9173 on 8/31, and below the 10 year trend line that crosses this week at 9210. The seasonal for the $ is negative into early Jan. This breakdown puts a push behind any and all. All of the major trade houses are negative on the $, one predicting a fall of 20% in 2021. If that is correct, the CRB will fly.
Being short anything while the $ is in a bear market will take skill and good analysis. A poor balance sheet, such as owned by cotton and wheat, often get overwhelmed by specs and funds wanting to "own something." Another macro barometer that can and will influence cotton is the rising stock market. In the last year, the $ and the SP have regained, mostly, an inverse correlation. Dollar down, stocks up. Or, as some prefer, "risk on." But for the moment, the right now situation in the row crops appears a correction is unfolding. For the near term, our guess is that grains, oilseeds, and cotton will correct in a choppy, sloppy manner. We are short, via long Puts, long Dec 21/short July, and short a few Mar futures.
RJO tech analyst Dave Toth mentioned the possibility that cotton has completed an Elliott 5 wave sequence. The first indication this pattern is correct, is a violation of 7185, which is the low of the last 6 days. He also points to an historically high bullish sentiment level of 90%.