Since last Fall when new crop futures began trading +7000, we developed a world balance sheet that was more or less balanced regards production and consumption. The USDA swung around to our view (nearly) with a scant 2.5 Mb deficit. Now we have more company vis a vis Cotton Outlook. The Liverpool research group had calculated a tiny deficit for new crop of 215kb worldwide, but has switched to a slight rise in stocks of 202kb. They accept the USDA estimate for the US at 19.2 Mb, and call India at 28.87 Mb, 3% above USDA.
Now that the big think-tanks are pretty much with us regards figures, the overall idea we had back in fall and winter was that since world production and use would be more or less static, the big issue would be a transfer of stocks out of the closed inventory of China, and into the ROW free market. The USDA has ROW end stocks at about 47.5 Mb, up from 40.8 Mb this year. That extra 7 Mb has to bang around or hang around somewhere, and somebody has to carry it. We think the USDA is a little low on world production, so this 7 Mb of extra cotton could be as much as 10 Mb if Mother Nature treats the crop well.
The boys in Liverpool at Cotton Outlook do good work, and we are pleased to have them thinking the way we have. Our problem is that we got bearish too soon, and had to wrestle through the demand surge that started on Christmas Day and kept going past Easter. We have been playing around with ROW end stocks to try to visualize what kind of fall price that means, and have decided to factor in a +/- swing of 3.5 Mb. The low side is therefore 44.0 Mb and the high side is 51.0 Mb. What is evident from the get-go is that the theoretical low ROW stocks would be 3.2 Mb above this year. That argues for a lower price box for new crop, and if the world produces a bountiful crop, then the price box is much lower.
uly appears to be drawn to the lower channel support at 7640. This is within a few ticks of the 5/11 low, where the bull spike began. Below that is the double low at 7535. Dec bounced off support at 7215, and is consolidating as expected. Sell rallies.
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