This market is the polar opposite of 3 to 5 years ago, and thats fine by us. Gains and losses today are manageable and incremental, and dont bankrupt traders on any given day. The range trade now in effect for 15 months will likely hang around as the Fed likes to say, for an extended period.
Two reports surfaced over the weekend, the first was the so-called Roundtable discussion of prices after the USDA report, and the range was a rather wide and friendly, 61c to 77c. No doubt the friendly opinions came from recognizing that a 3.0 Mb carryout will force prices higher. The other report was one of those baseline projections, pegging new crop acreage at 9.5 M. This is slightly below that of Informa at 9.7 M, and below our own estimate of 10.0 M, but fair enough. Cotton is not a great income producer, but due to grain prices dropping, cotton finds itself the least ugly girl in the room. And if the government allows seed to be included in the insurance program, then there is more incentive to plant cotton.
Some planters sold off equipment in recent years, but there are enough large operations with harvesters that can custom pick. Cotton will make a modest gain in acres next year assuming prices are similar post New Year.
Its better to be long and bored than long and wrong. The USDA report was friendly enough, but one cant get too bullish with the Chinese gorilla in the room. The $ appears to be in a corrective mode, and that may allow ag markets to have a short cover rally. Cottons problem is that specs are already rather long, so we dont expect any big move up from here. Seasonals are positive into 2 Jan, and we hope to unload longs at either the 6650 previous top, or at the sky-high-pie price at 6800.
6350 is short term support, with 6275 then 6150 lower and stronger support levels. The 21 day avg is 6334, and lower Bollinger is 6160. A trend line off lows of Sep and Nov crosses near 6255. Target 6650 to exit long.
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