The Cotton Club Letter – For Week Ending 5/6/2016

Chart Source: Barchart.com

Chart Source: Barchart.com

Nearby contract closed 194 points higher this week.

Managed money is net long.

Short-term, technical traders see possible support around 61.00, possible resistance around 64.00.

The trend is up.

Price
July-16 is at:   61.83        Volume = 12,709

Dec-16 is at:   62.11        Volume = 6
Mar-17 is at:   61.37        Volume = 5,007

Cotlook ‘A’ Index is at: 70.55

Recently (3 days ago), on 56 bales traded, the trading platform TheSeam.com reported an average cash price of approximately: 48.52.

On the nearby contract, that puts the average basis at approximately: -1331 points.

Cash prices are averaging approximately 1.23 cents over loan value.

ICE Certified Cotton Stocks = 65,810

US Net Upland Export Sales (2015/2016) = 61,300

    Brazil was the big buyer at 23,600.

Beginning Stocks: 111.88 (million 480 lb. bales)

Production: 99.80

Supply: 211.68

Mill Use: 109.59

Ending Stocks: 102.22

Ending Stocks/Mill Use Ratio: 93.3%

Beginning Stocks: 67.92 (million 480 lb. bales)

Production: 23.80

Imports – Exports: 4.8

Supply: 96.52

Mill Use: 32.50

Ending Stocks: 64.02

Ending Stocks/Mill Use Ratio: 197.0%

Beginning Stocks: 13.49 (million 480 lb. bales)

Production: 26.80

Imports – Exports: -4.95

Supply: 35.34

Mill Use: 24.50

Ending Stocks: 10.84

Ending Stocks/Mill Use Ratio: 44.2%

Beginning Stocks: 3.7 (million 480 lb. bales)

Production: 12.87

Imports – Exports: -9.46

Supply: 7.11

Mill Use: 3.60

Ending Stocks: 3.50

Ending Stocks/Mill Use Ratio: 97.2%

Producer / Merchant

    Long:  11,929  (Contracts)

    Short: 110,999

Swap Dealers

    Long: 67,625

    Short:  7,025

Managed Money

    Long:  57,568

    Short: 21,203

Other Reportables

    Long: 20,474

    Short: 22,893

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.

Bullish.

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

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*This is for informational purposes only, and not a recommendation to buy or sell.

There is substantial risk of loss to futures and options trading.

Past performance may not be indicative of future results.

One should carefully consider their financial suitability prior to trading futures or options.