The boys at Informa do good work, so their number at 10.0M acres for new crop is to be taken seriously. We have done a little work on new crop, and ballparked acreage at 9.0M, so we are about 10% below the east Memphis analysts. Reason we are at 9.0 M is that price levels of cotton and competitive crops are more skewed to grains than they were in 09/10 and 10/11.
Looking at this week’s various COT reports, one finds index funds long, specs short, so these two entities may cancel each other out for upcoming rolls. That leaves growers, who up until recently were in the sit-and-hold mold, and mills. Grower attitudes can be described as relief after watching the Dec plummet to 65c in June, then get within a few ticks of 80c this week. Once Dec ran stops at 77.50, there has been a lot of “relief” selling and hedging executed by the planter class. This quick rally of 8c has worked to free up a lot of cotton to get most of it in the pipeline for shipping, and a little of it headed to the board.
Varner View
We like selling Mar at the first tech resistance at 7675, +/-, for both farmer hedging purposes and a spec trade. The official end of the open outcry in the cotton options pit happened Friday and signals the end of over a century of traditional trading, that started when brokers would physically ‘gather’ under lampposts in New York to voice what they had to buy and sell. It’s a sad day for many who were used to the method, but, as all things have marched forward into electronic means, it signals a true new era of price discovery, and one that we all must now learn. We look back with fondness to all our friends in the pits, who have now either disappeared from the business, or are now upstairs in an office somewhere out there, staring into the new electronic pit.
Technicals
Resistance levels for March are numerous, stacked up from the 7675 area to 8470. Negative trend line crosses at 7675, dropping 4 ticks/day. The 144 day avg is at 7684, dropping 11 ticks/day. The Aug high is 7802. A Fib .382 retrace from the Feb high is 7900. A drop-down gap is at 7988. The 50% retrace is at 8270. And finally, the December low is at 8470. Our preference is to sell March at the first level of resistance in the 7675 area.
