Clawback
Valentine's Day, President's Day, and Mardi Gras, all stacked this weekend through Tue. Mardi Gras will be much diminished, as Democrats in New Orleans have canceled parades, liquor sales, bars, and gatherings over 10. They may as well cancel King Cake and 2nd Line.
We wrestled again with acres, and while its easy to whittle down states east of the Sabine River, what one does in TX will mean much more for the total. The Outlook Forum will release their number next Fri, and we have no doubt that this figure will be a cut from this year of 1/2 to 1 M acres. The popular argument runs that Dec cotton is much depressed vs corn and soy, and will therefore shed acres. Using today's prices for Mar 22 cotton, corn and soy, we find that the ratios are pretty much in the middle of a broad range since 2013. Plantings have ranged from a low of 8.6 M in 15/16 to a high of 14.1 M in 18/19. The 15/16 figure was dominated by TX planting only 4.8 M due to drought, a low since prior to 1990.
In spite of massive world stocks, cotton has been fighting and clawing for acres, and has been highly successful in the last month, rising sharply on corn and soy. This comes at the key period of decision time, and our guess is that when all is clear on 30 June, the acres then will be much above next Friday's number. Depending of course, on what happens in TX.
Without knowing what Mother Nature will do in TX between now and planting time, we will use a planting number pretty much in line with this year. If one applies an average abandonment of 10%, and yield of 825 #/a, then a crop just under 19.0 Mb emerges. Should TX get ample planting rain, then its easy to see that state plant 7.0 M or more. Alternatives in TX are few. Another acreage issue to ponder is how the world sees cotton now. In 19/20, cotton averaged 61c, and so far this year is nearly +10c. Most of the world's cotton is grown in areas with little to no alternative, such as W TX. We see acres rising in ROW. For a spec trade, we like selling the May 1.00 Call, against purchase of a May 82 Put, for no money.
Technicals
From Dave Toth, RJO tech analyst: Overnight break above Tue 8832 high (May contract) reaffirms the secular bull trend and leaves Wed 8580 low in its wake as the latest corrective low the market now needs to sustain gains above to maintain a more immediate bullish count. Its failure to do so will confirm a bearish divergence in short term mo and end a textbook 5 wave Elliott sequence from at least 29 Jan 8095 low that would expose at least a correction of this portion of the major bull. Per such, this 8580 level serves as our new short term risk parameter from which shorter term traders with tighter risk profiles can objectively rebase and manage the risk of a still advised bullish policy and exposure.
