The CPI annualizes at +1.9%, while the PPI annualized at +1.7%. These stats are dead on where the Fed wants them in order to exit QE, which is a murky range of inflation from 1.7% to 2.0%. Economic numbers have been good to very good in recent months, other than housing. But even that sector took a turn for the better this week. All of this good news on the economy means the Fed is finally having the argument as to when to back away, which means a return to normalcy. Good economy also means higher usage rates of commodities, so cotton (CTV14:NYB) is in good position to begin a long awaited rebound. As long as it stays competitive with poly, higher consumption is coming.
Rainfall data for Texas districts still indicates a fairly serious soil moisture shortage in 1-S. 1-S got about 3/10 this past week, nice but not a serious game-changer. Other parts of Texas look average to above, while OK and KS look much above average. States east of the Sabine River look good, to excellent, to record. Arizona has gotten rains this summer for the first time in……a decade? Only California is being punished this year by Mother Nature.
Varner View
If cotton was to make a new low, say around 6000 to maybe 5800, we are going to stand aside shorts again. Last time we did this was at 6800, then 6500, then scrambled to put them back on again. COT reports show non-commercials are very short, but commercial position still nowhere near where one would expect a major low. That would happen later in the fall after merchants have accumulated more longs in preparation for the upcoming shipping season. Regards this new ARC and or PLC program that the grains are going into, the easiest observation to make about confusing government programs is that they will be very grain friendly even if prices are low. This means new crop cotton acreage takes a big hit again. If we can identify a nice, worthy harvest low, we will take a look at buying the Dec 15 on an acreage play.
Technicals
Bill Gary’s tech newsletter sees a bounce on the weekly chart to the 7800-8200 area. That won’t happen, unless weather turns awful and China announces a no-sale on reserves. His eventual downside objectives are 6000 (gap measure) and 5400 for a channel objective. Both of those targets are reasonable.
