A handful of techies and one widely-read fundamental type analyst are calling for Dec to test and punch through 7200. The fundamental newsletter also cites nearby tightness and drought in Texas as bullish catalysts. We agree on the nearby situation, but cant imagine where this drought is. Late-season dryness in Australia was said to reduce the crop there by 400 kb, whereas others peg losses at 150 to 200 kb. The bulls are awakening with price predictions from 72c to 79c.
Viscose and poly prices have stabilized in Asia, after declining about 15% from highs in Jan.
COT positions show corn moderately long, Chicago wheat flat, KC wheat extreme long, and soy flat. Sugar, coffee and cocoa remain extreme short, but specs are covering. Cotton is moderately long, and net spec position is roughly in the middle of the last 4 years. Index and swap traders positions are near the upper edge of the long side. Corn at $3.80 looks a little cheap, while soy at $9.75 looks about right. Wheat probably goes to $1 to $1.25 over corn.
Varner View
The market is trading the Indian monsoon, which for a week has gone mostly dry. Specs are piling back into the long side in expectation of a continued halt in the monsoonal flow. Forecast does not indicate much rain on cotton areas till Friday, then puts rain over key areas for the next week. We are a little doubtful about the weather scare being anything more than a quick thing, as the monsoon gives cotton areas multiple times more rain than is needed to grow a cotton crop. A one-week drought is a little hard to swallow.
Technicals
Regards the red metal, there has often been good correlation between the worlds best indicator of economic growth in commodity markets. But not now. Copper has moved up from a low last May near $2.50, and is breathing on $2.95 current. Cotton peaked in May at +85c, and has only recently eased up from 66c. In a macro sense, both copper and cotton posted major highs in spring of 2011, then dropped by 35% and 50% within 9 months . Spec net long positions are a record high, and there is a double top in the $2.95 area. There is not day to day, or week to week correlation, but copper is worth keeping an eye on from a distance.
