Target Hit

Back in June and July the export target was 13.5 Mb (480#). Three weeks ago the US hit that target, and by this week has sold another half million for the roll. The year as seen by the USDA last summer, is over. But the USDA has responded to booming demand by adding 1 Mb to that summer estimate. A 14.5 Mb export target fits perfectly with the method of using 60% of available supply to estimate shipments. The only problem with the current target is the current sales. The total sales today is 14.070 Mb, as another 308 kb old were sold along with 122 kb new. These sales were made with 7s in front of futures, so next week we will see what crazy 8s will do to demand.

Our take on the USDA holding tight on what appears to be a shipment estimate too small, is that they are relying almost completely on the pace of exports. This weeks level of 291 krb was 80 krb below the necessary average. The trucker logjam has cotton shippers frantic to get cotton out, but this is a problem too complicated to fix quickly. Some say it requires a legislative solution, and that takes time, much of it.

Varner View

Based on the rate of shipments, and using the shipment/supply ratio of 60%, the USDA believes the export estimate of 14.5 Mb is about right. Lets assume this for the moment, and see what it means for the balance sheet. In the past 4 months the US has averaged a staggering 1.2 Mb in sales. Just for fun, at that rate the US would sell another 4.8 Mb by year end, putting the total at 18.8 Mb. If the USDA is right on exports, then the roll would be 4.3 Mb, an absurd situation. Things that cannot go forever eventually cease, but the 20 month demand boom shows no signs of death. Something has to give. In any normal year, sales would peak and begin to slide around the spring equinox.

Technicals

The Elliott patterns many tech-types use are in disagreement, with the Mar, May and July charts promoting a final 5 up in the making, and the spot and the Dec charts showing something else. The Dec chart can be argued convincingly that it has, or is completing its final 5th up, and is about to roll over. The spot chart is a muddled picture of confusion. The spot chart less notice offers more clarity. This chart indicates a large contracting triangle in place since July 2016. Support lies at 6750 and resistance lies at 8400, with a large range of 1650 points. Charts for Mar, May and July are bullish. Charts for spot (less notice) and Dec are bearish. Pick your poison.

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