The Cotton Club Letter – For Week Ending 5/27/2016

Chart Source: Barchart.com

Chart Source: Barchart.com

Nearby contract closed 266 points higher this week.

Managed money is net long.

Short-term, technical traders see possible support around 63.00, possible resistance around 65.20.

The trend is up.

Price
July-16 is at:   64.28        Volume = 13,718

Dec-16 is at:   63.85        Volume = 8,922
Mar-17 is at:   64.13        Volume =1,287

Cotlook ‘A’ Index is at: 71.45

Recently, on 80 bales traded, the trading platform TheSeam.com reported an average cash price of approximately: 57.55.

On the nearby contract, that puts the average basis at approximately: -673 points.

Cash prices are averaging approximately 5.16 cents over loan value.

ICE Certified Cotton Stocks = 95,362

US Net Upland Export Sales (2015/2016) = 128,500

    Vietnam was the big buyer at 30,600.

Beginning Stocks: 102.84 (million 480 lb. bales)

Production: 104.36

Supply: 207.2

Mill Use: 110.78

Ending Stocks: 96.48

Ending Stocks/Mill Use Ratio: 87.1%

Beginning Stocks: 63.32 (million 480 lb. bales)

Production: 22.50

Imports – Exports: 4.4

Supply: 90.22

Mill Use: 33.50

Ending Stocks: 57.72

Ending Stocks/Mill Use Ratio: 172.3%

Beginning Stocks: 10.89 (million 480 lb. bales)

Production: 28.00

Imports – Exports: -3.10

Supply: 35.79

Mill Use: 24.50

Ending Stocks: 11.29

Ending Stocks/Mill Use Ratio: 46.1%

Beginning Stocks: 4.0 (million 480 lb. bales)

Production: 14.80

Imports – Exports: -10.49

Supply: 8.31

Mill Use: 3.60

Ending Stocks: 4.70

Ending Stocks/Mill Use Ratio: 130.6%

Producer / Merchant

    Long:  15,981  (Contracts)

    Short: 111,572

Swap Dealers

    Long:  65,485

    Short:  6,800

Managed Money

    Long:  54,438

    Short:  23,792

Other Reportables

    Long:  20,809

    Short:  19,708

A regression model, like the one located here can give insight into how prices, on average, would react given a change in one or more fundamental supply or demand factors. A proper interpretation of this price model would be:

“Over the last number of years, if cotton supply and demand were at their current levels, we would – on average – expect the US price of cotton to be approximately: X cents.”

*Note* – This model does not attempt to forecast the future direction or level of cotton prices.

Bearish.

Keep in mind that while this is a weekly letter, I can easily change my mind in 24 hours.

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