It's All Clear
This is easy to explain. Cotton's balance sheets for US and world numbers, are clearly bearish. But cotton is a friend in need, and cotton's best buddy today is soy. Soy's balance sheets for US and world, are clearly bullish. The battle for acres next year is turning from a skirmish, to something more like Sharpsburg.
We tried to ascertain just what end stocks level cotton was trading, and that level was in the neighborhood of 5.75 Mb. The level of 7.2 Mb as reported, for the 2nd year in a row, suggests that yields prior to the series of Dixie hurricanes, were much better than anyone knew. This was suspected in our office, but when price traded 72c, the calculators did overtime to get ahead of what the market was pricing in.
A light bulb just turned on to show what this market is digesting now. The balance sheets argue for 60c, or lower, if cotton was trading in a box by itself. But the soy market is full-steam into a year by which much price rationing is required, and that means beating up consumers enough to pare down usage. If things stay where they are now, a price box of $14/$11 looks right, but if La Nina beats up the SA crop, look out.
Short term bias is negative into notice. The chart below indicates much lower price ahead for cotton, if not for the soy situation.
The major support force for cotton has shifted from a fear of weather losses, to using a crutch the soy market provided. Soy is going to take, demand, steal, and pilfer acres from all crops, in new crop, and this theft has just crashed its way into the front of the line as analysts try to figure out price forecasting. This sets up to be a terribly confusing period for cotton, as demand prospects are a long way from being settled. Red Dec at 70c, is going to be pulled downward by awful balance sheets, and pulled upward by a soaring, acreage stealing, soy market. What a fun winter we will have!.
Regards Mar, the first leg down was 436 points. Subtract this from the recent high, target 6769. Historical long term chart support is around 6600, and channel support is at 6575. The 55 day avg has held all corrections since mid Mar, and today closed at 6832.