Sterling Terrell

recovering economist

The Cotton Club Letter – For Week Ending 5/29/2015

The Cotton Club Letter – For Week Ending 5/29/2015
 
Price Picture
 
 
Chart Source:  barchart.com


Trend Picture


Chart Source:  barchart.com
 
Notes
Nearby contract closed around 90 points higher this week.
Managed money is net long. 
Short-term, technical traders see possible support around 62.50, possible resistance around 66.00.  
The trend is down.
 
Price 
July-15 is at:  64.35      Volume = 36,712
Oct-15 is at:  65.30       Volume =  17
Dec-15 is at:  64.64     Volume = 21,139
Cotlook ‘A’ Index is at:  71.05
 
Cash Sales
Most recently, the trading platform TheSeam.com reported an average cash price of approximately: 59.97.
On July, that puts the average basis at approximately:  –438 points.
Cash prices are averaging approximately 11.07 cents over loan value.

Stocks and Sales

ICE Certified Cotton Stocks = 124,606              
US Net Upland Export Sales = 117,500        
(Vietnam was the big buyer at 40,700.)

Current World Balance Sheet (2015/2016)
Beginning Stocks:  110.25  (million 480 lb. bales)
Production:  111.25
Supply:  221.5
Mill Use:  115.29
Ending Stocks:  106.29
Ending Stocks/Mill Use Ratio:  92.19%

Current China Balance Sheet (2015/2016)

Beginning Stocks:  65.33 (million 480 lb. bales)
Production:  27.00
Imports – Exports:  5.95
Supply:  98.28
Mill Use:  36.00
Ending Stocks:  62.28
Ending Stocks/Mill Use Ratio:  173.00%

Current India Balance Sheet (2015/2016)

Beginning Stocks:  14.32 (million 480 lb. bales)
Production: 29.50
Imports – Exports:  –4.1
Supply:  39.72
Mill Use:  25.75
Ending Stocks:  13.97

Ending Stocks/Mill Use Ratio:  54.25%

 
Current USA Balance Sheet (2015/2016) 
Beginning Stocks:  4.4 (million 480 lb. bales)
Production:  14.50
Imports – Exports:  -10.69
Supply: 8.21
Mill Use:  3.80
Ending Stocks:  4.4
Ending Stocks/Mill Use Ratio:  115.79%

 
Commitments of Traders 
Producer / Merchant
  • Long:  10,610  (Contracts)
  • Short: 106,753
Swap Dealers

  • Long:  59,531
  • Short: 4,501
Managed Money

  • Long: 58,762
  • Short:  34,703
Other Reportables

  • Long: 23,319
  • Short: 11,435
 

May Cotton Price Model:  55.4 cents 
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:  55.4 cents.”

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

General View 
Bearish.

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

This letter archive can be found by clicking, here.
 
If this email was forwarded to you and you’d like to sign up, email me at sterlingterrell@hotmail.com with “Cotton Club” in the subject line.  Email with “Stop Cotton” in the subject line to be removed.

*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.

In Business, Debt is Bad

In Business, Debt is Bad

[This is part of the series: 7 Tips To Make You Better At Business]

Businesses and the senior managers that run them need to treat debt as a path to be avoided.

In favor of debt, you will hear professors and analysts argue about internal rates of return.

This idea is best seen in a simple example.

What if I have a business, or project within a business, that can earn 10% per year on an investment.

If the cost of borrowing in the same example is (say) 6% per year – then one would say that this is considered “good debt.”

A 4% annual return can be earned through this debt and corresponding investment.

The problem is that this is not entirely true.

What is actually true is:

“A 4% annual return can be earned through this debt and corresponding investment – assuming nothing else changes.”

What if sales dip?
What if inflation ticks up?
What if technology changes your business or project?
What if a major customer leaves?
What if your largest salesman leaves for a competitor?
For this same reason, people make the same mistake with debt in their personal lives.“I can afford debt for a big house, a nice car, extravagant vacations, whatever.”

Yes – you can afford it – now – assuming you never get a pay-cut, you never lose your job, or you never have any large and unforeseen expenses. Otherwise, you are going to be like the others I have seen that trade in their car and sell their house at the first major hiccup with household income or expenses.

How many of us live paycheck to paycheck?

How many businesses are essentially doing the same?

I have told a story before about a small company that had around $30,000 in monthly debt payments after a major project fell through.  Income from the project went to zero – but the debt was still there.

The debt is now sinking the company.

You want to expand your business or buy something new?  Pay for it out of your pocket.

  • Debt restricts you.
  • Debt obligates you.
  • Debt ties you down.
  • Debt makes you beholden to another.
What is true for debt in your personal life is also true for business.
A good rule for both:  Avoid it.
Sterling Terrell