Weather has given some relief to the Llano Estacado and Australia recently, as between ¼” to ½” accumulated in west Texas last week. This will help planting, but as usual this area needs more. Australia welcomes rain in mid summer, but these would have been much more timely if they had occurred earlier. Estimates for the Aussie crop run from 1.9 Mb to 2.4 Mb.
Rabobank released a report with some price projections for ag commodities, and while they may not get them all right all the time, at least they do put out real forecasts. For wheat Rabo sees 4th Q price at $4.85, up 33c, or 5.8%. Corn is seen in Q4 at $3.75, down 40c, or 10.6%. Soy is pegged at $9.00, down 65c or 6.7%. Q4 meal is seen at $3.10, down 0.10, or 3.0%. Sugar is forecast for fall 2015 at 17.50, +1.20, or 7.4%. Coffee is good for $1.73, +0.18, or 10.4%. And for the percentage winner in this group we have the most overlooked and forlorn market of all – cotton. The King is forecast to trade 72c by Q4, a surge of 10c, or +16.6%. Before the band plays Dixie, lets be aware that a 17% gain on such a puny price is really not that big of a deal. But at least cotton has one fine friend.
We remain friendly due to white-hot demand and grains prices that are making sure that there will be severe acreage cuts for cotton. Farmers who have sold out their 2014/15 crop can try buying May call spreads, while specs can try the long May 62 Call/short 55 Put for about 30 ticks. And, a spec can do the same bull fence, and perhaps add a sell of the May 68 Call, and get all of this on for no net premium. As the Aussies would say, “Fairdinkum!”
Open interest has moved up to levels that tie for the most since the end of the 2010/11 bull market period, There have been about 10 times since post Big Bull that cotton has grown OI to nearly the 215k level, and each time has resulted in a high or low price reversal. Market action today hints that a reversal is taking place, and we recommend long trades on breaks.