Cotton
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Started by metmike - Oct. 29, 2018, 12:31 a.m.

CTZ gapped higher on the open(open and low of 78.83, was higher than Fridays high), spiked to 79.60 a few minutes later but has continued to drift lower the past 3 hours, since then.

Now near the low at 78.64 and also filling the gap.

Extremely volatile. Very often, a price performance like that(gap and crap) gapping higher/lower on the open, then filling the gap is a sign that the move in the direction of the gap has been exhausted. 

I wouldn't want to be short however, considering how much cotton production has been lost, especially from  unprecedented losses from hurricane Michael in Georgia as noted from WxFollowers analysis. 

Question is not whether the USDA will lower the size of the cotton crop on the November production estimate but how huge will the reduction be?


Previous cotton threads/posts:

https://www.marketforum.com/forum/topic/15717/

https://www.marketforum.com/forum/topic/15065/


Comments
Re: Cotton
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By WxFollower - Oct. 29, 2018, 1:06 a.m.
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Mike,

 CT is very fragile/volatile. What other market could rise that much that fast and then fall back almost as fast? It reminds me of a less volatile version of crazy OJ. Of course, this volatility is helped a lot by the very thin nighttime market.

 I don't know why it rose so much initially. I don't know of any CT related weekend news. Maybe it was due to carryover bullishness from Friday's price action?? Could the drop-back be related to the Chinese stock market's 1.5% drop instigating profit-taking? OTOH, US stock market futures are mixed and pointing up with regard to fair value. Also, the Nikkei is up. Crude is pretty flat.

Re: Re: Cotton
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By metmike - Oct. 29, 2018, 3:48 a.m.
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Ct went all the way back below 78c.

Re: Cotton
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By MarkB - Oct. 29, 2018, 3:49 a.m.
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Just play it. We operate on a world scale. Of which the closest compeditor is Egypt.

Re: Cotton
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By tjc - Oct. 29, 2018, 2:34 p.m.
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  Three day rule says to buy cotton tomorrow  (Rule says a commodity will test its high/low 3 days thereafter.)

  Low was 7614 last Thursday.  3 days is Tuesday.

  Know where wrong

  Ahh, do I once again see 78 calls in my portfolio?



Re: Cotton
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By WxFollower - Oct. 29, 2018, 3:26 p.m.
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tjc said: 'Three day rule says to buy cotton tomorrow  (Rule says a commodity will test its high/low 3 days thereafter.)

 Low was 7614 last Thursday.  3 days is Tuesday.

 Know where wrong

 Ahh, do I once again see 78 calls in my portfolio?"

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tjc,

 Do you have a link to exactly what this rule says? I've never heard of this rule and am not sure what you're saying other than Tuesday being 3 days after Thursday. It hit a low last Thursday and obviously has a decent chance to test that low tonight/tomorrow morning assuming the weekly crop reports aren't worse than last Monday's reports. My educated guess is that they won't be on the whole and may even be improved overall thus allowing for a decent chance for a further price drop tomorrow considering the weakness late today. That being said, both the weekly reports and any reaction to them are unpredictable.

 CT was very weak at the end of the day as stocks hit their lows of the day and the dollar was strong, two factors that tend to be negative for CT prices. This could continue for awhile.

Re: Cotton
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By WxFollower - Oct. 29, 2018, 4:36 p.m.
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From Dow Jones News:

"(*) denotes data for the same period the previous year.  
TOTAL U.S. COTTON CONDITION SUMMARY (IN PCT):                 Yr Ago(*)  
in pct  10/28 10/21 10/14 10/07 09/30 09/23 09/16 09/09 09/02 10/29/17  
v poor     18    13    11     6     6     7     8    13    15     5  
poor       16    20    20    19    19    22    24    21    18    10  
fair       31    33    34    33    33    32    29    28    26    30  
good       27    26    29    32    32    29    30    29    31    41  
exlnt       8     8     6    10    10    10     9     9    10    14  
 
STATE INDEXES AND NATIONAL AVERAGE RATINGS:  
(An index value of 100 is approximately normal.)              Yr Ago(*)  
         10/28 10/21 10/14 10/07 09/30 09/23 09/16 09/09 09/0210/29/17  
Ala        95   100   100   110   109   110   109   112   111    99  
Ariz       98   101   100    99   100    99    97    99   100   109  
Ark       113   113   113   114   113   114   113   116   116   115  
Calif     110   110   110   110   128   128   128   128   128   133  
Ga         73    71    69   100   101   101   102   101   102    91  
Kans      100   100   104   107   107   109   106   105   105    99  
La        102   102   102   102   104   104   102   100   100    84  
Miss      106   106   106   106   107   106   109   108   107   104  
Mo        101   101   101   101   103   102    98    98   102   100  
NC         90    84    85    86    86    83    92    99    98   112  
Okla       89    85    87    86    88    89    87    80    81   109  
SC        101   100    99   101   101    97    99   102   106   119  
Tenn      100   104   104   106   106   109   108   110   116   113  
Texas      76    79    80    82    82    78    76    72    72    93  
Va        101   103   102   105   100   102   106   108   106   109  
15-state  
avg        83    84    85    90
    90    88    87    85    86    97  
Yr ago     97    98    99    99    97    99   100   101     0    NA"


 So, despite a 2nd straight slight improvement for GA, there actually was a 2nd week in a row of a slight worsening for the US as a whole thanks largely to the most heavily weighted TX's very poor rating rising 9 points.

 Since Sep. 30 (near the time that the last USDA report looked at CT), GA is despite the last 2 weeks of slight improvements still down 28 points (73 vs 101) and TX is down 6 (76 vs 82). The 15 state weighted average is down 7 (83 vs 90). So, the next USDA will roughly be looking at a crop that is 7 points worse than when the last report analyzed the crop. This is also 14 points worse than a year ago. As of a month ago, it was 7 points worse than a year ago.

Re: Re: Cotton
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By tjc - Oct. 29, 2018, 4:42 p.m.
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  No written rule, just 'old' trading barb.

  HOWEVER, look at major lows/highs.  Very often an initial move followed by a test, 3 TRADING days later of the low/high.  Sooooo, one buys or sells against the low/high test.  In this instance, the low was 7614.  A reasonable test 3 TRADING days later may be at/near say 7660

  Look at Oct 1 and 4    June 8 and 13

Re: Re: Cotton
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By metmike - Oct. 29, 2018, 4:48 p.m.
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USDA crop report had a noteworthy item:

https://release.nass.usda.gov/reports/prog4418.txt


The cotton crop in Texas rated very poor jumped 9% to 25%, coming from the poor =6% and fair -3%. G/E stayed the same in TX. So already damaged cotton got even worse. Would this be from freeze damage in the panhandle showing up/becoming more obvious???


This caused the national crop rated vp to increase 5% and poor to fall 4%, also the fair to drop 2%.  So the national crop rated p/vp only increased 1% but the vp went up 5%. The national crop rated Good actually went +1%.

This was all from the Georgia crop that  improved +5% in the good category to 19%.

Cotton already has been bombarded with incredibly bullish supply news(massive production losses-maybe a record for October). Not sure if 5% shifting from p to vp, is a market moving type item in this environment.

Larry has been on it from the get go, so I'll listen to his take......and what tjc thinks too..or anybody else that has a view, we welcome your thoughts please.

One thing last night that bears repeating. Cotton gapped higher on the open, then filled the gap a couple of hours later to form a gap and crap technical buying exhaustion signal. 

Turns out that it was in fact a good signal.



By metmike - Oct. 29, 2018, 4:51 p.m.
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OK, when I was typing that up, Larry already posted his take. Thanks much!

By tjc - Oct. 29, 2018, 5:56 p.m.
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  Based upon the report, not sure it opens lower UNLESS another poor SPZ initially.

By metmike - Oct. 30, 2018, 1:13 p.m.
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After showing some overnight strength, CTZ is down today. Currently 76.78 -.39.

Last weeks lows were 76.14. Todays low was 76.58 a bit after 10am.


Re: Cotton
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By WxFollower - Oct. 30, 2018, 2:11 p.m.
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 I did further analysis of the degree of the worsening of the US CT ratings during Oct of 2018 vs prior Octobers (as far back as weekly ratings records go for the bulk of October, which is 1990 though 1997-2002 were unavailable) and found that Oct of 2018 worsened the most of any Oct and it wasn’t even close to the 2nd worst Oct, 2009. The 3rd worst Oct was 1993, 4th worst was 2010, and 5th worst was 2008. 

 Here is the list of each year’s US Oct CT ratings changes along with the Nov USDA production report’s change in US CT projected crop size:


Year/Oct change of (G/E - P/VP)/USDA

2018/-16/??

2017/-1/+1%

2016/-2/+1%

2015/-1/0%

2014/+3/+1%

2013/-2/+2%(vs Sep 1 since no Oct rpt)

2012/+2/+1%

2011/0/-2%

2010/-5/-2%

2009/-10/-4%

2008/-4/-1%

2007/+1/+4%

2006/0/+3%

2005/+7/+2%

2004/-3/+5%

2003/+4/+4%

1996/-1/+2%

1995/+4/-2% (latest avail 3rd wk Oct)

1994/+9/+1%

1993/-8/-4% (latest avail wk mid-Oct)

1992/+13/+2%

1991/+3/+3%

1990/-2/+2% (latest avail wk mid-Oct)

—————————————————-

 From worst to best ratings changes during Oct, here is the list:

-16, -10, -8, -5, -4, -3, -2, -2, -2, -1, -1, -1, 0, 0, +1, +2, +3, +3, +4, +4, +7, +9, +13


 For that list in the same order, here are the USDA Nov report CT crop size changes:

??, -4%, -4%, -2%, -1%, +5%, +1%, +2%, +2%, 0%, +1%, +2%, -2%, +3%, +4%, +1%, +1%, +3%, -2%, +4%, +2%, +1%, +2%

—————————————————-

 Conclusions:

 - There is a pretty decent correlation between Oct ratings changes and Nov USDA report % crop size change, especially on the extremes of ratings changes. The 4 worst Octs all had Nov crop decreases while the 4 best Octs all had Nov crop increases. Also, the 2 worst Octs had the largest Nov crop increases. 


- Otherwise, the correlation is far from perfect. So, if Oct of 2018 hadn’t been so far on the extreme of worsening ratings, I’d be hesitant about trying to predict the Nov USDA crop size change based only on ratings.


- Since the Oct of 2018 ratings change is so extreme and I have additional research to utilize, I do feel comfy in making a prediction for the Nov USDA. Going back to when the weekly ratings were first available in 1990, the largest crop reduction in the Nov USDA was 4%. With Oct of 2018’s -16 being quite a bit worse than the two Octs that resulted in that 4% crop reduction (-10 and -8, respectively), knowing what I can best estimate are the minimum losses for GA/AL/FL from Michael, knowing what % reductions have occurred in the Nov USDA for TX/OK for past wet and cool NW TX/SW OK Octs, realizing KS and AZ likely also had some Oct losses due to wet/cool, realizing NC likely had losses, and realizing that the remaining states as a whole likely won’t have a significant increase, I predict with high confidence that the Nov USDA US CT crop will drop a minimum of 4% and could very well be at or above the 6% record largest drop (set in 1974).


Re: Re: Cotton
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By metmike - Oct. 30, 2018, 2:27 p.m.
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Incredible work Larry!!!!!

Maybe the best ever by you.

I am printing this out for a keeper.

Am wanting to be long here based on just that. I have avoided having a position on before a USDA report for over a decade but am tempted to put a small one on because of this.


I'm not a seasoned cotton trader.......grains and energies are my expertise and exclusively on weather and cotton prices are pretty high compared to recent years and demand is getting clobbered. 

Re: Cotton
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By WxFollower - Oct. 30, 2018, 2:44 p.m.
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Thanks, Mike. Indeed, I’m confident today’s further price drop was due to the demand side and not the supply side based on the analysis just done, especially since the overall US crop worsened slightly again despite slight GA improvements. Since the stock markets have been up today, the main reason for today’s drop could very well be the very strong dollar index today. In addition to tariffs, I’m sure you know that a stronger dollar makes US CT exports somewhat more expensive to recipient countries. So, that is on the demand side of the equation. The question then becomes whether or not the supply side will take center stage for any length of time once the price gets  low enough to have dialed in the lower demand from overseas. If so, where is that price? And what is the market assuming for supply reductions??

Re: Cotton
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By WxFollower - Oct. 30, 2018, 3:43 p.m.
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 After finally getting a very welcomed dry lull for a week with a few warm days for a bonus, light rains are headed back to NW TX/SW OK tonight and into tomorrow. Though not heavy, this along with a cold day tomorrow is not desirable for harvest progress, and we're now reached an even drier part of the year there climo speaking as late Oct is much drier than early Oct.

 If model consensus is correct, the Delta is quite possibly going to get quite heavy rainfall from two different systems over the next week or so: first one tomorrow into Thu and the 2nd one next Mon-Tue. The good news for CT is that most of that crop has already been harvested. But the farmers with the small portion that is still out there will not like this.

 Also, significant rains (though not real heavy like what the Delta may get) are headed to the SE US. This won't be favorable to what wasn't already destroyed and still remains in the fields. This is normally the driest part of the year there and hence normally favorable for harvesting, But we're in El Nino.

Re: Re: Cotton
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By metmike - Oct. 30, 2018, 8:13 p.m.
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https://release.nass.usda.gov/reports/prog4418.txt


Cotton harvested vs average             +/-change vs average

AL 50vs53-3%

AR 35vs37-2%

AR 86vs76+10%

CA 35vs57-22%

GA 42vs43-1%

KS   4vs11-7%

LA 86vs93-7%

MS 77vs80-3%

MO 87vs61+26%

NC 48vs35+13%

OK 23vs27-4%

SC 34vs36-2%

TN 68vs48+20%

TX 36vs33+3%

VA 51vs39+12%

US 44vs43+1%

Outside of CA, there are no states more than 7% behind(KS/LA). However, with the wet weather coming up the next 2 weeks, I'm guessing a few states will fall a bit more than 10% behind by mid November. My impression is that anytime it rains on cotton at this time of year, it can hurt the quality.

It appears that AR, not a major producer has the greatest % of the crop unharvested in combination with the heaviest rains leaving it with the highest risk for damage from these upcoming rains. However, AL,GA,SC, NC and VA still have alot of the crop in the field that will have several rains events on it as you mentioned.

By metmike - Oct. 30, 2018, 8:24 p.m.
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Re: Cotton
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By WxFollower - Oct. 31, 2018, 3:27 p.m.
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 Most interesting part of today's session to me: on very strong volume (1K out of entire session's 13K in just 2 minutes elapsed time), Dec rose from near session lows to near session highs just before the close (from 76.56 to 76.95). I'm guessing end of month short covering. 

Re: Re: Cotton
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By metmike - Oct. 31, 2018, 5:16 p.m.
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Sounds reasonable to me Larry.


Weather is not good for harvest or cotton conditions for the next week in much of the south, also the TX panhandle looks pretty good after these scat showers move out early tonight:

https://forecast.weather.gov/MapClick.php?x=165&y=191&site=lub&zmx=&zmy=&map_x=165&map_y=191#.W9oYNTFRfX5

Am no big cotton trader but like you, have been drawn to cotton because of the weather script that was written earlier this month that caused the record production losses. 

Makes me feel like I know something very important about supply that should effect prices.............if the market trades that. 

For me, I feel that there is an advantage when using weather in a market trading in tandem with weather forecasts. Cotton has NOT been doing that. There can't be a weather forecast that comes close to being as bullish as the extraordinarily bullish weather that bombarded cotton earlier this month.

Biggest weather losses in October history by a wide margin for cotton and we closed the month much closer to the lows of the month than the highs.............but am still temped to be long ahead of the USDA November report because it seems likely, that there will at least be a spike higher after a bullish number comes out.

Wouldn't it be something if that's the only reason cotton isn't 5c lower right now and after the USDA reports the bullish news............and its out, CZ goes limit down. 

tjc, has also been following cotton and he trades cycles, being was pretty sure that he missed the low on Friday(76.14) which he had been calling for and was kicking himself when we closed strong Friday and gapped higher on Sunday Night.

Were we just testing that low? We got down to 76.49 for the low today and like you said, we were back down close to that just after 1pm.  

How much meaning does the strong close have? Will cotton sales tomorrow mess it up?

https://apps.fas.usda.gov/export-sales/highlite.htm


tjc was suggesting stops below 76c on long positions a few days ago. Still thinking that?




By tjc - Oct. 31, 2018, 9:20 p.m.
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  Stop remains below 76.

  I am already long calls, but buy stop 7712 sure should work

  I want to see the MetMike buy 100 7712 stop limit buy stop!!


Dreaming, but "what if" Trump flys to Hawaii Saturday to meet China Pres--don't be short spz, sf, ctz, and many more --polls would swing for Tuesday

By metmike - Oct. 31, 2018, 9:21 p.m.
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Thanks,

It looks like CTZ had a tiny gap higher on the open, 15 minutes ago,  just a few ticks above the previous session high and filled the gap again.

On such a tiny gap and crap, I would put  no weight in the signal. 

I should be following CTH-19 now anyway because there appears to be more volume  in March cotton, with December right around the corner.

By tjc - Oct. 31, 2018, 9:37 p.m.
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Options expire next week.  Premium within tolerable limits.

Know where wrong.   80 to 82 not out of question on serious short covering.

Larry should give most "comfort"---I on edge!!

By metmike - Oct. 31, 2018, 9:51 p.m.
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tjc,

You've displayed to us, how you are not shy about aggressively buying front month options ahead of their expiration! 

Re: Cotton
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By WxFollower - Nov. 2, 2018, 3:46 p.m.
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 Today, CT fell on a combo of comments from the WH that there is no imminent agreement coming for US/China and that there may not even be one for the G-20 summit late month. Also, the Dow was down significantly and dollar up modestly today, both additional bearish factors. CT's low was 78.30, which was hit early in the daytime session and retested a couple of times the next hour or so, which yielded bounces. Subsequently, it rose slowly the next couple of hours before very strong buying late boosted it to the highest in several hours and allowed for a close with only modest losses. The strong buying today reminded me of the same that occurred the prior two sessions. For a day with mainly bearish economic news after such a strong day yesterday, it held up fairly strongly. I suspect one reason for this are the big crop reductions likely in next Thursday's USDA. The comeback allowed for the highest Fri close in 6 weeks.