Last night at 1:15a, trade negotiators agreed to pare back tariffs, tit for tat, and the stock market took off. So did cotton, piggy back style. Good news for stocks is evidently good news for cotton, as the SP rose 0.7% and cotton is up 1%. Cotton is mired at 65c while the SP is at all-time highs, but that’s another story.
Sales were above avg at 195 krb, with Pak high at 100 and Viet 2nd at 48. Indo did another rollout, pushing 66 krb from old into new. Thus, new crop sales were very good at 151 krb, best in 9 weeks. Combined crop year sales were huge at 346 krb, 4th highest in the 14 week series. Shipments were puny at 134 krb.
Crop report is Friday, and consensus expectations call for a lower US crop of 300 kb to 750 kb, and a decline in the world production from 2.0 Mb to 2.5 Mb. These cuts, plus some really pesky harvest weather, plus all-time high for the stock market, have allowed cotton to maintain 65c in spite of a burdensome carryout.
We re-calculated carrying charges for cotton, and will ease down a few ticks to 85/month. Most warehouses run about $3/b (60 points), and we were using $3.50 (70 points). Prime interest is 4.75%, which equals about 25 points. 60 + 25 = 85. Dec/Mar average carry is thus 255. At 1100 today, the spread was -155, so it has 100 ticks to move down before hitting full, avg carry. Its a little cheaper to buy country cotton than take delivery of the Board, so our guess is the spread goes below -200, say -225. 15% chance it goes to -250. The spread will likely bleed out as FND approaches. A low in the spread often occurs with a low in futures.
For 3.5 weeks cotton has traded in a 2.5c range, and today bounced a little toward the median point. A negative seasonal begins 11/10, and runs to avg date 11/23. This low lines up with notice day, which is 11/22. Nearby support is 6305, and intermediate support is 6170. We expect the lower support to be tested by the seasonal low date.
As always, please use protective buy and sell stops when trading futures and options.
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