One trader opined that US end stocks would have a "3" in front. That certainly whiffed, and that argument has shifted to "wait till next month." OK, and we agree that end stocks could slip a little more, as classings seem a little shy, and current export demand seems a little better than the report numbers. Maybe the end stocks will creep down to our estimate, 4.1 Mb.
World numbers were a small surprise. We had India's end stocks dropping 1/2 Mb, but they got stuck for a 1.3 Mb drop. The phantom stocks theory has held that end stocks in 18/19 and 19/20 were lower by 2 to 6 Mb, but the adjustment in this report was all in current crop. China's crop size jumped by 1.5 Mb, a surprise, and use followed almost as much with an increase of 1.0 Mb. China's end stocks are now 37.3 Mb, and a whisker away from 40% of world stocks. Their end stocks/use ratio is a staggering 95%.
If there was another surprise, it had to be the Pak, which is experiencing a terrible production year. This line item was actually raised 200 kb to 4.5 Mb, giving this country a little relief. The Pak has been a hungry buyer of US cotton of late.
First observation, price has soared 7c in 6 days, with May and July within a short throw of 90c. A carryout of 4.3 Mb compares well with that of 17/18, and the futures high was 9650 made in late May/early June. This price was likely more influenced by the new crop ratio that dropped to as low as 22% in mid summer. By the end of 18/19, the end stocks swelled by 2.5 Mb. The 14/15 ratio of 24% is an exact replica of this year, but price meandered within 10% of 65c all year. Why did one year with a similar ratio differ so much in price with another year of similar ratio? The answer may be that in 14/15 the dollar was rising fast, 81c to 100c. In 17/18 the $ was dropping from 94 to 88. If all things are equal on the balance sheet, then the currency change and relative value has to be a key part of why cotton was such a dog in 14/15, but was a celebrity in 17/18. Since the crop year began, the $ has traded from 93.5 to 90.5, with a high/low of 94.8/89.2. Our assumption is that the overall value of the $ today is perhaps 25% of cotton's rise from 48c.
Cotton has made major tops at 8625 in 1984, 8670 in 1994, 8330 in 1998, 8480 in 2003, and 8718 in 2017. Of more interest is the timing similarity on daily charts, mentioned in these pages earlier. The first leg up in Mar from 4/02 to 7/09 was 67 days. The 2nd rally from 7/24 to 10/28 was 67 days. The 3rd rally began 11/02, and today marks 67 days from that low. Also worth reiterating is the spike in volume 3 days ago to 100k, and combined volume of the last 3 days at 250k, a record for any consecutive 3 days.