Cotton
THE MOVE WE HAVE BEEN WAITING FOR! It’s finally here and for Cotton producers it is a welcome sight to see large speculators, after weeks of establishing new all time record net short positions, finally covering those and moving the market higher. As we said many time, this extreme position, with outright shorts peaking at 33.3% of total open interest, is a significantly bullish factor in a market that lacks in totality seemingly any bullish fundamentals.
In the week ended Tuesday, large specs were net buyers of 16,414 contracts. This was the largest shift by quantity since the 4/16 and 4/23 COT Reports that showed net selling of 24,022 and 20,600 contracts respectively. The last time specs were as sizable net buyers was February 13.
As we said last week, breaking trendline resistance after a selloff of this scale and an apparent bottom being formed might be enough in itself to cause significant short covering. The third chart below shows this move was a combination of short covering and modest new longs. This may be a tough rally to ride, all signs point to this having significant upside potential, while fundamentals are likely to suggest the rally stops in the mid to upper 70s. Producers, and of course us as we determine how to advise producers, will be faced with the decision between rewarding a strong price rally with sales…or remaining patient in hopes of higher prices yet. After some discussion on Wednesday’s weak price action, we opted for patience, the right move for now.
One thing we can advise now…start thinking about at what price you will make a sale, and what quantity you want that to be. Maybe have your next two sales planned out. This could be a quick moving market and we have frequently made some of our best sales via Limit orders, rather than deciding to decide later.
Rice
The people have spoken, and do in fact want more rice coverage. Our editorial team met this week to discuss how we might return to publishing rice commentary weekly online, like this week’s here, while still alternating between rice and dairy in the print edition. If this is something you’d like to see, email iberry@brockreport.com, our writers love to hear from readers to know that their hard work is appreciated.
The big mover this week was commercials, at net sellers of 595 contracts, while large specs were net buyers of just 111 contracts and small traders sellers of 485.
Price action was extremely positive this week, closing higher each day, and trendline resistance discussed last week was broken. November futures have actually closed higher eight consecutive sessions now, but still need to take out their bearish key reversal from August 1, which would take trading through that day’s high of 15.620.
As we said last week, this is not a seasonal time to be selling rice, but like cotton marketers, we will be faced with deciding when to reward the rally with defensive sales vs. holding out for higher prices.
