Dollar down, cotton-and everything else-straight up. Polls and betting lines continue edging toward the Dems in the Georgia election, and if they win both seats, the $ is toast. If the Repubs keep a seat, then look out the other way. Its going to be an interesting night.
One surprising thing during this bull market has been the ability of cotton to keep within a shout of the Chicago markets. Ratios with corn, wheat and soy are not at extremes, and cotton can reasonably to hold on to acres even though its world balance sheet is stuffed. Cotton/soy on spot is about 0.06, and has been between 0.053 to 0.08 for most of the last 9 years. Cotton/corn is at 0.165, and has been between 0.14 to 0.22 for most of 8 years. Cotton/wheat is just below median for the past 2 decades.
Watch the $ tonight, it will tell you who is winning Georgia.
Even though cotton's balance sheet is unworthy of 80c, here we are. Cotton is a derivative and coattail grabber of the Chicago markets, and the sinking $. Demand has been outstanding, but only with the assist of other markets can cotton claim an 8-ball handle. Cotton traders need to ask how high soy can go, rather than ask the same of cotton. That market has a theoretical, and real, 0 bean carryout, and cotton traders know what can strike when that happens. Spring of 2011, the cotton carryout dropped to 1.6 Mb, and demand was screaming, and it was easy to project a theoretical 0 balance on 1 Aug. Price had to go to $2 to make enough mills upchuck their cotton, and forego use. Times like these scare end-users into carrying more inventory of everything, just to beat the next price increase. We have no idea where this all ends, but for the right now, Soy is our leader.
The soy market appears to be ramping up into the gap-and-go action, along with limits. Next will come margin jack-ups, and potentially the dreaded "for liquidation only" edict issued by the exchange. Soy is up 8 months in a row, and is near the 62% retrace from the 2012 high to the 2019 low, at 1408. The other market pulling cotton upward is the $, and it broke down today and is sitting at the low edge of the lowest price since Apr 2018. Regards cotton, the Mar continuous chart is in the 20th week of new highs since the spring low, as is the Dec continuous. Chart below shows the GS CRB index, which is up against a trend line coming off the all-time high of 2008, then coming near or touching highs in 2011, 2014, 2018, and 2020. The large declining triangle has contained all price for 15 years, so we expect at least a pause here.