The end stocks crept downward as we thought, but there was a shudder and surprise in the numbers. Regards production, no surprise, as classings have indicated the crop was skinnier than 14.95 Mb. Then for consumption and exports, the numbers are causing some head-scratching and can be taken as outright negative. Use was lowered by 100 kb, which is a pretty piddling number, but this is coming just as the US economy is awakening, and nearly all forecasts call for a roaring consumer. What happened here? Then for exports, any fair projection for sales and/or shipments has to reach for a higher figure over 15.5 Mb. Recall back in May and June this number was 16.0 Mb flat and bales have been flying out.
World numbers on their face were friendly, with a cut of 800 kb from production, mainly due to the US and Brazil. Consumption rose 1/4 Mb, from Turkey and Viet. Perhaps the strong reaction today, and the reversal from 9560, was because a few of the macro boys with deep pockets bothered to look at the world balance sheet, and realized that it was stuffed.
The raw numbers today were friendly, and market reaction was blackjack dirty. This is probably due to cotton getting much ahead of itself, and rising to a level that was about 8c to 10c above a fair value range. We have written that if cotton is worth some sort of calculated average, there is an ocean of price swings in a 10% fluctuation either way. Something like 95c/70c, for the rest of the year. The $ has also ceased its go-nowhere sideways chop, and has defied gravity and deficits to make a major low. It hasn't gone up much, but a rising $ for commodities is like sunshine to Count Dracula. We are holding a syn short via the May 82 Put against the May 100 Call, and will look to exit soon. Farmers are in a sweet spot for new crop, 50% hedged at average of 81c.
Its easy to call the spot high at 9295 a major top, same for May at 9560. Now what? After a dime break, we see no sign of capitulation by long specs, and that matters most. Cotton has not reached that "oversold" level to indicate a minor low. It has reached an equal leg measure at 8448. The 55 day avg is 8388. Below that is our lowest target at 7925, the major 38% retrace of the entire move.