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Little change for cotton

The stock markets open at
this hour show little change as is the case with most US commodities.

NEWS/REPORTS/MISC

ICE Spec/Hedge & CFTC
COT Reports – Per the ICE exchange, spec added 585 new longs and 4,055 new
shorts for a net decrease in spec longs by 3,470 contracts.  Over the past two weeks specs have
reduced their net long position a total of 7,666due to the addition of nearly 9500
new shorts from Dec 6-17. The CFTC legacy type reports show similar activity
with non-commercials in futures only. 
As of Tues, Dec 14, spec added 622 longs but 4,456 new shorts for a net
reduction of their net long position by 3,834 contracts.  However, as was the case the preceding
week, specs appear to be buying options to offset any risk in their new shorts
as the futures/options report show 1,295 new longs and 1,469 new shorts. 

1221markets.jpg

US Classing/Loan Data – As of
Dec 16, another 931,369 running bales were classed of which 74.9% is
tenderable.  For the season,
15,008,421 running bales have been classed or 85% of the NASS crop estimate of
18.27 mln statistical bales. Due in large part to Texas, the tenderable amount
of the US crop has advanced to 64.4%.   The only states with a significant amount of cotton
still being classed by mid-December are Texas, Ga Ca, Ok, Az and SC.   Five states though are through,
Ark, La, Ms, SC and Va. 

As for loan information,
672,227 running bales entered the loan program and 510,521 were redeemed for a
net in-movement of 161,706.  As of
Tues, Dec 14, 4.07 mln running bales are in the loan program.  To no one’s surprise, Tx has the most
cotton in the loan program, 999K bales. 
Next is NC then Ga followed by Tn, Ms and Ark. Another way of viewing
the amount of cotton in the loan, 3.57 mln is there by way of
co-ops and the remaining 497K was entered by producers. 

PRICE IMPACT/CONCLUSIONS

The March contract went
through its Nov 10 high with little, if any, difficulty and more is expected
given how options settled in its next session.  The now expired Dec 10 contract traded as high as 157.23 on
the same day and that to should be taken out easily.  Having spoken to various commercials and traders, mills are
buying only limited amounts of cotton and certainly not with the same interest
during October and early November. 
Whether foreign mills are buying on-call meaning buy now, price later is
unknown but given how high prices are, it is fair to assume they are pricing
very little and based on their activity in October/early November, probably
buying options to protect their upside. 
As of today’s close and using open interest in the March options, there
are more than 87K calls in the money. As its peak, the Dec 10 had over 95K just
prior to its last trading day. 

As to why there is so much
interest in buying the March, some commercials are nervous being short the
front month.  Continued export
sales over the next few weeks will drop the available cotton to extremely low
levels and helps explain the widening inversion of March over May and
July.  I remain suspect if
shipments will ultimately match projected USDA exports of 15.75 mln bales as
demand rationing reaches around the globe but that is of little consequence to
those in the front month for the moment.

My technician said in
regards to today’s activity “Was that an exhaustion gap in March Cotton?  It will take a few days to know.”  As a reminder this week is “3 up” and
another day or two of limit up may prove enough.  I am attaching a cotton continuous monthly chart using the
close only with a Relative Strength Index study at the bottom.  The nearly vertical move from the Jul
2010 close of 82.36 through today of 154.12 is an increase of187%.  Starting from the low close of 46.47
that was made in Mar 09 through today, the chart shows an increase of
332%.  Even more amazing is with 8
days left in the month, the RSI value is 91.8%.  I looked at various commodities that had sustained a major move
over the past few years such as crude oil, sugar, silver, wheat, soybeans,
gold, and corn.  I found only two
commodities with a higher RSI, sugar from Jan 06 and soybeans from Feb 08.  As was the case in early November, the
cotton rally will end when it ends. 
Attempting to peg a specific price high is an exercise in futility but
as Dave says, toward the end of this shortened week, the market may tell us its
intent. 

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