Cotton futures: Sub Loan Everywhere

Cotton futures

When price goes below 60-62c, the US Loan kicks into gear and is used heavily by planters. Same thing for India, as that country’s Loan is different across the country, lets call it something around 63c for higher grades. Loan for long staples is about 65.5c, and Loan for medium staple is around 60.7c, assuming we converted Rupees and 375# bales correctly. Combining US and Indian crops, there are 46.5 Mb of cotton of which large chunks are now headed for government ownership, for a time. (CVZ14:NYB)

This does not add or subtract a single bale from world stocks, but it does create false shortages at various periods of the year. US planters find their equities are enhanced due to carrying charges being waved, and will find little reason to sell their cotton unless merchants pay up. This year will become one of endless bottlenecks as merchants pry loose cotton from US and Indian farmers, and price will yo-yo around these logistics. Futures will likely never go to carry, as it will be a real struggle to buy cotton cheaply enough, and timely enough to place in certs. An old-fashioned kind of year.

Varner View

Cotton is tip-toeing into notice, and getting cheap enough to sniff around for a modest long trade. We ran through the seasonality of cotton yesterday during November, as depending on number of years one uses for a model, cotton usually comes back from a low around FND. This year’s personality will not feature any large post-notice price gain, but we do think if one is patient and buys Mar with care, then maybe there can be a 2c to 4c move up off the lows.

Technicals

Today falls on a Fib count of 34 from the low of Oct. 12/01 is 55 from the high of Sep. 12/02 is 89 from the low of Aug, and 144 from the major high of May. With 3 long term Fib counts falling on 12/01 and 02, traders should be alert for price reversals on those days. A seasonal low is due Fri/Mon.

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