The Drought Is Over
Across most of the South this year, it got cold in mid Feb, and started raining. And that pretty much held up into mid summer. Then it got hot and dry, and that pattern held up till today. If there was ever a drought that actually helped the crop, perhaps this was it. It started near the end of the growing season, and rain was nonexistent until a broad cool front reached the upper Delta last night. This long dry spell allowed farmers to get a large % of the crop harvested, and this one rain won’t matter much to quality.
The USDA report is due on Thursday, and we expect little to change on the US side. India production is likely to rise, and the Pak will lose. World use will stay in the muddy middle.
A “leaded tweet” around 1230 said China was ready for a limited trade deal, one that would punt on the thornier issues next year.
We give odds for Dec to push into stops at 6340 at 25%, and hope that happens. Another round of short liquidation may present a nice spec sell and a place for a farmer to add to hedges. With so little happening in our market now, we look to Chicago and the currency markets to give some outside influence. Chicago market newsletters are nearly unanimous in predicting yield decreases, and that sets up a chance for some disappointment. The 9/30 stocks report indicated less soy and corn in the supply, so traders expect lower carryouts. On another front, the $ is as stuck as is cotton. We remain committed to selling into cotton when/if Dec breaks above 6340. IF-IF-IF.
One technician sees a recovery for Dec possible, ranging from 6750 all the way up to 7400. Maybe so, but we have laid out targets of 6470 and 6638 which seem high, but are well below this one tech analyst. Normal spec liquidation for Dec begins around 1 Nov, 3 weeks out. The Dec/Mar spread is at -70, right in the middle of a broad trade range for 13 months. Our guess is that the still-large spec short may cause this spread to narrow, and once again try the -30 resistance, tested 6x. We would try a bear there.
As always, please use protective buy and sell stops when trading futures and options.
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