Perhaps the most important news this week for cotton was the arrival of what is now Tropical Storm Trami in south-central China. Yields of row crops have been lowered this summer due to drought, and Trami looks to give a large ag region in China 2” to 3”. Rains of this amount in late August may save some of the row crops, and certainly help cotton yields.
Allenberg CEO Nicosia gave a speech a few days ago, and laid out plainly the uncertainties facing cotton. The largest price discovery force by far is the Chinese policy, and Nicosia said that any decision would likely be made right before the 2014/15 planting season begins. March has typically been when the Chinese announce changes to the program, so if there is a policy change in March, that means this market will have to bang around on its own until then. He gave good advice for farmers to step up and sell into the current invert, saying “there’s no glory in carrying inventory through an inverse.” True enough, and there are plenty of costs. He does suggest that there could be some more rallies in the near term, thanks to a short US crop and weather concerns, but recommends to use these rallies to sell. That’s good advice, but we were looking for a 3c to 5c rally to sell a few weeks ago, and got a 10c scream that scared the daylights out of us.
Can Dec reach back into the high 80s and give farmers yet another chance to sell? Well, its been there 3x since March, so one more ride up there seems possible, even likely. Nothing has changed since this wildness in August has taken place, other than traders paring down positions on both sides. Before Dec traded 94c, we thought it prudent to sell in the 8750 to 8950 area. That seems like a good idea again, but this time we will have both eyes open on this crazy market. In outside markets, the CRB is moving back up toward resistance at 657, thanks to higher prices in energy, and breakouts in soy and precious metals. The dollar has been lower the last few weeks, but has maintained a sideways range for almost 2 years.
The weekly continuation chart has made a rather textbook bearish sell signal by opening at the close of last week, and closing below the lows of the previous 4 weeks. This type sell signal matches those made in mid Mar and late Oct. The spot chart reached a support level via a positive trend line which crosses at 8370. Next support is the 7 month support at 7930. Seasonal trend is choppy to slightly higher..