There were really two surprises in yesterday’s report, the first of which was the large cut in US production. The 2nd was that the USDA left alone the export target at 10.0 Mb (9.7 M running bales). This is spite of the US just now hitting the 7 Mb sold, a pretty good number this early in the year. This will be an easy mark to hit, with an average of only 82 kb needed. The shipment average to make the target is 241 kb, and this week the US kicked up shipments to the highest of the year at 207.5 kb (201 krb). The tardiness of the harvest had crimped efforts to ship more cotton, but now that harvest is catching up, shipments will hit the high road. Sooner or later, the USDA will have to raise the export target.
The US has shipped 25% of its total commitments, and this is low compared to other years with 34 weeks left in the market year. However, the US has shown it can ship as much as ½ Mb in a week, so we should see much better figures from now on.
Varner View
Specs can be a trifle long now, with more attention on selling option premium than outrights. The long term chart is changing from bear to neutral. As for farmers, we see little to do other than to wait and watch for hedging opportunities, but these may not appear for weeks, maybe months. Mar at last month highs around 6350 is perhaps worth a sale, while early fall highs at 6800 would be a kitchen sink all-in sale. Two levels in Dec 15 to place hedges are 6700 and 7200.
Technicals
The 34 day avg has kept a lid over the Mar for week and has held on 3 tests. The 55 day is at 6107. We believe the Nov low was the final, and that it is now in a corrective phase of the entire move down. Most likely target is the 38% retrace at 6820. This coincides with double highs near 6800, the first of which is likely a 4 wave high.
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