Minor surprises came from Georgia coming in with ¼ M acres below the Outlook Forum, and Texas up about 350k. Peanuts got the Georgia acreage, while the OF estimate for Texas was simply too low for recent history. At 9.55 M a, the report can be considered on the slim side of friendly. The one other stat to note is the drop to 150k acres for pima, down from 200k a couple years ago.
Our overall thinking on cotton acreage is that somewhere in the low 9 millions, it has bottomed out. Only during PIK in 83/84 was it lower, at 7.4 M. That year’s figure was the result of government acreage mandates, as compared to today’s considerations of price and alternatives. US cotton acreage hit a low of 9.1 in 09/10, and there were two other years at about 9.4 M in the last decade. New crop corn is about $4, and soy has traded around $9.75 for months. It would take cotton staying in the low 60s, and grain markets rising by maybe 25% before we would expect cotton acreage to move below 9.0 M.
Varner View
There will be a lot of production guesses being rolled out, now that acreage is fixed. We will get to ours in a day or so, but will run one number using trends and averages, and the other with conditions as we see them now. The problem with running calculations based on averages in cotton is that there is such a distortion in Texas for the last 4 years. Texas, et al, looks to be headed into an average to above situation this year, and therein lies some big differences with choosing yields and abandonments. As for trading, a buy breaks posture is warranted. Bull spreads look ok. Notice day is 3.5 weeks out, and that normally means a low. However, the Mar notice was one of only 2 notices in 4 years in which the market rallied.
Technicals
Regards July, it held to the tick the 55 day avg at 6270. This may suffice in the short term. Trend lines show resistance at 6600 and support at 6100. Prefer to buy against support. The 6600 resistance is not only for July chart, but has several highs and a couple lows going for for years. A minor seasonal low is due on 4/12, and a major low is due on 5/05. Look for buying opportunities around those days.
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