Market continues to explode higher, for now – AgFax

Clean young cotton field in the lower Rio Grande Valley. Photo by Danielle Sekula Ortiz.

The roller coaster continues, limit up to 500 points, limit up to 700 points and then we lose a little. Even the “limits” are changing faster than ever. We have an exploding market, but Icarus will return to Earth soon, most likely in June.

Still, for now, the market is likely to be a little higher next week as call sales remain very high and the rain forecast calls for hot, dry and windy weather to yield the High Plains and Rolling Plains representing about 60% of the cotton area of ​​the United States.

The old crop target of 150 cents was reached ahead of schedule. Call sales data suggests that 160 cents shouldn’t be ruled out, but these are anything but unpredictable times. There’s a lot of tea leaf reading going on now.

December saw contract highs this week, breaking above 125 cents before selling off near the weekly close. December can climb to 150 cents without extreme drought conditions continuing. Yet the drought is the worst on record.

The weekend market sell-off was associated with speculators being reluctant to enter the weekend without taking profits. They were reacting to fear of the effect of rain on prices. Yet there is no rain in sight. However, it was a prudent marketing decision to take profits. New long positions can be re-established on Monday of next week.

The December new crop contract was initially driven by lack of subsoil moisture and is now being pushed higher and higher by widening and even more extreme drought conditions as well as government weather forecasts and privates who suggest that rain is not in the weather forecast until mid-summer, far too late to prevent a production disaster in much of the southwestern cotton region, encompassing Texas, Oklahoma and Kansas.

Additionally, New Mexico’s acreage is also caught in the extreme drought that is plaguing the southwest.

Ongoing inflation is generating the most discussion among market analysts. Of course, economic history documents the root cause of inflation as the uncontrolled spending of the US Congress coupled with the injection of cash into the economy by the FED. Both institutions are the legitimate parents of our current inflationary fiasco.

The FED can and will help end the problem, but to date it has shown no tendency to bite the bitter bullet hard enough to stop the problem, only to slow it down. In fact, the Fed’s current ratings imply that they will allow inflation to drag on for the coming year. Evil will lead to a longer period of economic weakness, therefore economic pain over a longer period.

The Piper will get his due now that the United States has been handing out money for almost 18 months and continues to do so, the Piper still gets his, Adam Smith in The Wealth of Nations. It’s simply the consumer’s payment for Congress’s tinkering with the market. At most, the writings and actions of the FED will only slightly lower the rate of inflation increase.

A sharp slowdown is coming. Many have weighed in on the subject, but the best estimate is that the recession will hit in the second or third quarter of 2023. Currently, the American consumer has more than enough cash that will extend their spending habits into the first quarter. 2023.

It is only when the consumer decides that his money supply is becoming limited that the “expected” recession will surface.

Nevertheless, short-term inflation is bullish for cotton prices, as for other raw materials. However, the deterioration in demand will be greater than the support for inflation. The problem will arise when inflation reduces the consumer’s pocketbook, leading to a drop in demand for clothing and textile products – this is the law of economics. Unfortunately, it’s on the horizon, but probably in six to nine months.

So, the best news is that prices have a few more months of “raging out,” or at least maintaining their bullish tone. Additionally, in the Cottonbelt, cotton, soybeans, and corn will always compete for the same acreage, and competing price ratios will dictate plantings.

The ratio of call sells to call buys will continue to hold old crop support above 140 cents and push prices up to 160 cents. The contract life of 125 cents high in December will continue as long as there is no rainfall in the cotton region of the southwestern United States.

About Marco C. Nichols

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