After every report, we run a few calculations and try to box in a "fair value" for the major row crops. Its mostly based on US end stocks and ratios, and a comb through recent history. The landscape changed in the 06/07 year, prompted by the massive N. American freeze on winter wheat. That issued in 7 years of acreage battles, exacerbated by a moving 5% to 20% decline in the $. So with a 15 year history in mind, our fair value for soy is 16.75, wheat is 5.50, corn is 4.30, and cotton is 77c. Soy is much underpriced, while the others are over by 10% to 20%. All of these prices should have a normal fluctuation around them, so a 10% swing for the remainder of the market years would place soy in a 18.40/15.10 range, wheat is 6.05/4.95, corn is 4.85/3.90, and cotton is 85c/70c, with a large room for error.
Making life more difficult for an analyst is to try and push into fair value the relative values of the $ when looking for years of similar carryouts and ratios. We will attempt that in coming letters.
We must assume that even though the 14/15 and 17/18 years had a similar carryout and ratio compared to this year, the huge difference in price is partially, or mostly due to $ fluctuations. The $ rose strongly in 14/15 by 20%, and fell hard in 17/18 by 15%. The $ is nearly exactly the same level today as it was at the end of 17/18, so one tends to assume a very positive influence on the price structure now. Wonder where row crop prices would be today if the $ was trading +15%, as it did at the end of 14/15?
In over 50 years of price history, cotton has had major tops in the 95c area 8x, at 85c its seen 8 tops, at 115c one top, at 110c one top, and the $2 bottlerocket 1x. Nothing has happened yet to indicate a major top, but volume is certainly waving a flag, with a tie for a one day event, and an all-time record for 4 consecutive days. The exact timing for the 3 distinct rallies from the early April low pegs yesterday as the end of the 67 day count, low to high.