What’s Irma Worth?

agricultural, Charts, Commentary, News, Technical Analysis

We went through maybe a dozen exercises and calculations to estimate the damage done by Harvey, so here we go again with Irma. Table below shows the 5 states that are likeliest at the moment, to lose cotton when Irma strolls in. We took open bolls from yesterdays progress report, then skewed forward a week to get the % open next Monday. Then we applied that to the last Aug report on production to calculate open cotton in each state, by number of bales.

If Irma had the exact same impact on all of the states, total loss would be 1.077 Mb. That figure is fuzzy enough, but then what to subtract from? Just last Friday Informa put out a rather optimistic crop of 21.2 Mb, pre-Irma. Its very easy then to surmise that if Informa is right, and if our exercise is right, the crop post-Irma will be 20.1 Mb. Who the heck knows, but we have to run these little scenarios to be prepared how to trade.

Varner View

If Irma slides along the east coast of Florida then cuts into the Carolinas, this would be a much less destructive path than rolling right over sw GA. The Aug report had GA at 2.9 Mb, and we think that figure is 10% too low. A hard hit on this crop could theoretically wipe out 650kb. GA will have roughly 45% open bolls next Monday, meaning 1.3 Mb are at risk to stringing out and quality losses. Trying to estimate the US crop size for the Sep report is going to be so much fun for us number hounds, as the report gets here the same day as Irma! Next Mon/Tue will be like the old days when gentlemen with ties filled the pits and phones were jammed with hurricane fears. We have been kicked out of spec shorts, and will look for re-entry this week. Farmers should be 100% sold into the Dec before Irma and USDA arrive next week.

Technicals

Charts for Dec and Mar have different looks, and we find ourselves drawn to Mar for a pattern that fits. If we assume the low of 7/14 at 6594 was the 5 wave low, then its easy to see the market has made a large A-B-C correction of the move down. The A leg from 6594 to 7083 was 489 points. A 150% extension of this is 733, add that to the B leg low of 6650. The target is thus 7883, the exact high today. A very nice fit. However, the Dec chart had no similar 5 wave low, and has spent 14 months in a huge 950 point sideways range. Todays spike brought it back to the upper edge. Since the Mar chart makes more sense, recommend specs try again on short side in this contract.


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