Easing into Summer
There are more than a few traders attempting to gin up a bull story for cotton. The Indian monsoon is late. Its too wet to plant in some parts of the South. Demand is outstanding. And corn will take acres from all crops next year. We cannot dispute the theory on the monsoon, as it seems this thing sputters every year in the beginning. As for weather overall, we do recall one service saying that the persistent rains in the South this spring would shift north in May. He was deadly right. The same service now says the pattern is shifting, away from drought in parts of Mexico and Canada, and flooding in the central US. This service uses 1995 as a comparison, and calls for a high pressure ridge to develop in the central US, changing weather patterns on the entire continent to more favorable. The developing ridge will soon make changes apparent by mid June.
Sales are once again expected to be good.
Demand is good, spreads are tightening, grains are firm, and cotton is enjoying a respite following a shellacking this spring. We think the market is in a correction, and this could easily stretch out into mid June. The USDA June report is on the 11th, and options expire on the 14th. One of those days may bring the market a temporary top. But those dates are 2 weeks off, and we have already started nibbling at some Puts so as to ease back into a timid short. The two most powerful bullish forces for cotton now are the corn market and demand. Some “experts” are saying so many corn acres will be failed so as to wipe out the entire carryout. Corn has reached the first level of what we see as being equal between prevent payments and field revenue, based on the lowest theoretical failed and prevent acres. For cotton traders, it would be uncomfortable to be short while seeing corn run and spike higher.
Not much going on with cotton, below we offer a long term chart of the SP, showing what we think may be some long term top patterns.
As always, please use protective buy and sell stops when trading futures and options.
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