Seems like for the moment, we are all corn traders. This market is not only all over the ag news, its grabbing headlines on major TV stations and newspapers. For whatever reason, corn has sagged 20c in 2 days (-5%), and has carried cotton in its wake. Also adding a bit of gravity are crude and copper, both of which cotton has been known to attach to.
We get another round of sales and exports tomorrow, and these have been so good for so long it would be foolish to look for poor numbers. The downdrafts in industrial markets, and the yield curve inversion, certainly proclaim loudly of at least a worldwide economic slowdown, if not recession. Cotton consumption under these lenses looks to stagger backwards.
If this market would go on and pop up another 2-3c, we know what to do. In its current meander, it looks like of one of several other sideways meanders in recent months, when price stayed in a tight range. We see 4 periods since last June’s major top in which cotton tracked nowhere for several weeks. We doubt cotton will persist in this, as its early summer, other markets are jumping, and there are 2 fundamental events next week. One very positive indicator for higher near term prices is the July/Dec spread, today hitting +200. This represents 7c above full carry, but some merchants see holding cert stocks as a good thing in the face of strong demand. We are sellers on higher money.
Chart shows July/Dec spread, having reached the first of two resistance levels. A negative trend line crosses at +200, and next is the double top area of +300. Full carry is about -500, so July is reaching a rather high invert vs Dec at this late stage. We like bears side at +300.
As always, please use protective buy and sell stops when trading futures and options.
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