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February 11, 2025
BUY COTTON
WITH BOTH HANDS…
I don’t care about trade wars. I don’t care about the gross
misconception that China has become some sort of economic weak sister. Quite
the contrary, I think that China has moved beyond all the headlines about
plunging real estate values (same as the USA did in 2009) and simply as a
factor of the same DYNAMIC expansion inertia they have been experiencing since
1990…as well as their aggressive government financial stimulation…I
THINK THE CHINESE ECONOMY IS VIGOROUSLY ON THE UPSWING…which will impact
any number of commodities, one being the Cotton market. In a nutshell, as the
world biggest user and importer of Cotton, my guess is that 4-5 months from now
a major story in the ag world will be how, “Chinese buying has propelled Cotton
prices sharply higher.”
In my 45 years doing this, I have seen this scenario more
than a few times…wherein China buys the living sh*t
out of low priced Cotton, causing prices to go somewhat crazy on the upside,
and then they disappear for a few years as the market drifts, and sometimes
crashes, all the way back down…AND RIGHT NOW, WITH COTTON IN THE 60’S,
AND UNDER THE COST OF PRODUCTION, MY BET IS THAT THEY ARE ALREADY, AGAIN,
QUIETLY BEGINNING TO LOAD UP…Does anybody out there know they are? Of course not…When you’re the world’s biggest buyer, and not
stupid (they aren’t), what you DON’T do is put out some notice that, “Hey
everybody. We like the market here. We’re buying.”
Some data…RECORD SPECULATIVE
SHORTS-RECORD COMMERICAL LONGS
I don’t know if China is part of the record Commercial long shown
on the chart below…but that IS how they can buy it without a whole network of
Cotton houses knowing that they’re doing so…In other words, it’s a simple
transaction, for example, to buy futures and then take delivery 2-3 or 5 months
down the road…
And the on the flip side, when I look at the Spec Funds with
the biggest short in history? Sooner or later, something’s go
to give…and I think it will be those Short specs who
get clobbered…as Cotton “surprisingly” (EVERYTHING I see in the media is
bearish) comes up and out of here…
Do observe how prices DID reverse at those points when Specs
were either very long…or very short…
Cotton moves…a L0T…
And then there’s this…BETWEEN NOW AND JULY, GOING BACK TO MY
FIRST YEAR IN THE BUSINESS, 1980, COTTON HAS A HISTORY OF MOVING…A LOT…AND JUST
ABOUT EVERY YEAR…WITH THE AVERAGE TOTAL RANGE, FROM IT’S LOWEST TO ITS HIGHEST
PRICE BEING 19.5 CENTS…OR ALMOST $10,000 PER FUTURES CONTRACT.
This does NOT tell you which way it’s going…only that year
after year, between February 1st and the end of July, it DOES make a
fairly big move…sometimes down, sometimes up, sometimes in both directions. See
for yourself…
HOW MUCH COTTON MOVES BETWEEN FEBRUARY 1ST
AND THE JULY EXPIRATION
Tossing out the two extreme
years, 2011 (74.40) and 2022 (55.95), the average range going back to 1980 is
19.5 cents.
In
other words, HISTORY DEFINITIVELY INDICATES THAT IT’S NOT GOING TO JUST LAY HERE FOR THE
NEXT 5-6 MONTHS…THAT IT’S GOING SOMEWHERE…AND SOON…AND I ABSOLUTELY THINK
IT’S GOING TO BE UP.
As noted before, it’s price is under the cost of production,
and as a result, I know for a fact that some bankers are either
curtailing or denying producer loans for Cotton farmers simply because current
prices dictate that there is no way to project anything other than losing
money on the crop…And this, I’d guess, will mean some degree of reduced
acreage going to Cotton this spring. How much I certainly don’t know…and maybe
the decrease will not be significant…but I’d also say it certainly doesn’t
presuppose increased acreage…far from it.
And aside from my suppositions regarding Chinese buying, of
course there is the erratic weather…which, in the course of a
planting-to- growing-to-harvest season, almost seems to have become an
ongoing/occasional bullish news factor, somewhere on Earth, for every crop that
gets planted…and that of course includes Cotton…whether it’s as we now
head toward getting it planted, or in the heat of summer, or finally getting it
harvested. You never know…but nowadays, if the weather IS making the news, it generally seems to be a
negative for crops…and bullish for prices.
And finally, one of the best
old hands (35 years worth) I
know in the Cotton business, yesterday told me, “I have NEVER EVER seen
everybody as bearish as they are now…farmers, brokers, mills…EVERYBODY.” And
that, I’ll swear up and down all day long,
IS when you want to be
buying. That IS how the markets really do work.
Here are two call options I
like…
Cotton DOES have a tendency to kind of “leap” away from major lows…And I
mean it when I say I would not be surprised to suddenly see it 5-6 cents
higher…from right here...within a matter of days. We DID
have a USDA report today that was unanimously regarded by analysts as
“mildly bearish,” (which, frankly is exactly what I want to hear), but Cotton
closed up .86 and pretty much on its highs.
I might be dead wrong but I think this market is frigging READY TO GO…and
this ain’t hype. I LOVE IT. RIGHT HERE. RIGHT NOW.
Get in touch if you see what
I see…
Thanks,
OLD HAND Bill
770-425-7241
866-578-1001
All
option prices in this newsletter include all fees and commissions. All charts,
unless otherwise noted, are by Aspen Graphics and CRB.
FUTURES
TRADING IS NOT FOR EVERYONE. THE RISK OF LOSS IN TRADING CAN BE SUBSTANTIAL.
THEREFORE, CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT
OF YOUR FINANCIAL CONDITION. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE
RESULTS. THERE IS NO GUARANTEE YOUR TRADING EXPERIENCE WILL BE SIMILAR TO PAST
PERFORMANCE.
The author of this piece currently trades for his own
account and has a financial interest in the following derivative products
mentioned within: Cotton