Commentary, Commodities|October 25, 2012 9:34 am

Classing Over Production

In the last couple of weeks, the classing reports have taken precedence over monthly production reports and weekly ginnings. All of the sudden, traders are focusing much more closely on quality than they are on quantity. So this year in mid harvest is becoming one of a shortage, or somewhat so, of high grades, and not so much a record world carryout. That little stat can be put away, at least for now.

We finally got around to reading the Final Statement from the ICAC’s Plenary Meeting, and found a couple of items enlightening, and one amusing. In para 4, the ICAC is planning to jump back on its price forecasting efforts, and has unleashed a new effort to study cotton prices and determine how they fluctuate. The 2010/11 market blew up their pricing model, so we await eagerly their latest effort to peg prices in the future. We all get it wrong sometimes, and encourage the ICAC to get back on that horse. The ICAC bemoaned government support prices, and they haven’t even addressed the new US insurance program.

Varner View

Table attached shows the latest ICAC and USDA monthly supply/demand reports, side by side so one can scan and see the differences. There remains a monster disagreement of over 5 Mb for world end stocks, and how that comes together will probably take years. As for trading the market, we still hold out “hope and change” for a short in Mar at 7675. If the trading gods don’t give us that, then we’ll have to go back to “change you can believe in.”

Technicals
Playing around with one of the tech toys on our system, we found a fairly nice 96 day cycle (trade days plus holidays) between significant price reversals. The most recent 96 day events are a major high for 12 Sep 2011, an intermediate high on 24 Jan 2012, a major multi year low on 6 June 2012, and most recently an intermediate high on 18 Oct. Why the 96 cycle is not known to us, but the last 2 cycles have occurred with heavy volume, thus making these reversals serious and confirming.

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Classing Over Production

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