Markets go nowhere more than they trend. Chops and sideways action, false breakouts and head-fakes are more common than a 3 month move of 12c. With cotton trading around 65c, this price represents a pivot level for cost of production, and without big changes in weather or the $, we may be here for a while.
As cotton tip-toes into the time for some new crop decisions, new crop is marginally lower this year vs its major competitors than year ago. Dec 19 was about 6c-8c higher, so we expect some small reductions in acreage. Yields and subsidies come into play, as farmers east of Dallas all the way to Savannah had a good experience, while W TX was just one more in a string of disasters.
The world has too much cotton, but a few less acres and a falling $ may offset a world surplus to keep cotton in a small ball batting cage.
Scanning row crop cousins and close kin, we find cotton is well into bi-polar action as is soy, corn and wheat. Copper is no trend setter, as it has been stuck in a horizontal price channel since May, a box of $2.50 to $2.75. Crude has pivoted around $55 since May, closely aligning with copper. Only the stock market has a trend, and perhaps one can make a case for a couple of the softs awakening from their slumber. In this kind of environment, playing small ball is better than betting for the home run. Breakouts on either side almost always end up as head-fakes, as cotton is known for.
The 6600 barrier has kept a lid over the Dec, the Mar, and the spot chart for 8 weeks. Momentum has turned down at a time seasonal history is positive. Traders looking for direction should keep one eye on the $ and another on the Real. The $ has reversed downward – again – and the Real is holding major support near 23.50. A lower trend for the $ would help the bull side bust through 6600. We watch from the sidelines.
325 Cotton Row Cleveland MS 38732
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