The 72c Dance
Corn and wheat caught a bid at 0830 today, and jumped a dime and 15c in 3 hours. Soy got a bid at 0915, rising 19c. Then cotton joined the Amen Chorus, getting a 100 tick boost on grain market coattails. The $ was listless, but there were some more good words about China stepping up ag purchases for phase 1.
Cotton remains overpriced based on one thing, its own balance sheet. That leads us to ponder just what else is packed into the current price. Part of it is the price of soy and a solid bet that cotton will lose acres to its cousin come spring. Another part is the current value of the $, currently at a 2.5 year low, and easing toward a 6 year low. Then there is bubbling optimism over demand for everything in 2021, with expectations that the world's consumers will move into a blow-out mode after being stifled by Corona.
Balance sheets matter, but so do all of these macros and outsiders.
With price seemingly adhered to 72c, fundamental types keep pondering on just how much to take off the end stocks. We have pretty much removed exports from any sort of big change, as similar years and a couple of methods indicate that 14.6 Mb is dead center of reasonable work. As for production, when the Nov report showed only incremental changes between the states, the odds are diminished for big changes, such as a 1 Mb cut, on this report. Our guess is that the crop does get whittled down a bit, but nothing significant. Cotton's balance sheet is disrespectful of a carryout in the 6.8 to 7.2 Mb area, but this market is on other coattails for now.
Technicals
The near term trend is down, the intermediate is flat, and the long term is positive. Seasonal is + to 1/02. The price channel has been intact since 3/20, tested 4x at resistance, and 2x on support. Current channel confines today at 7660/7060, median is 7360. Dec expires tomorrow, and the spot chart will pick up at least 2c. The roll to Mar will put the spot chart back up against the 7260/7300 resistance.
