If this bill were to pass and ethanol demand would no longer be supported by a mandate, it could potentially free up millions of corn acres that would then become available for other crops such as soybeans, wheat or cotton. The bill is likely to face stiff opposition from farm and ethanol lobbies, but this is definitely something we need to keep an eye on!

So where do we go from here? By completing a “rounding bottom” and reclaiming the important 82.00 cents level, which served as an important support line from early February to late October, the market has, in impressing fashion, managed to dig itself out of the hole it fell into a little over two months ago.

However, in order to keep the upside momentum going, we need to see greater spec involvement. While there has been some spec buying and short covering over the last couple of sessions, a lot more is needed to keep this rally going.

We do feel that the market is getting the specs’ attention, since a) it went through resistance at 81.70 cents with relative ease, b) the market is inverted and c) it closed above the 50-day and 100-day moving averages in the last two sessions. The only deterrent at the moment is that the RSI and Stochastics are in overbought territory, which means that the market may have to offer a pullback first for specs to move in from the sidelines.

While the technical action looks constructive, the market is getting a bit pricey from a fundamental point of view. We therefore feel that any spec-sponsored advance towards 85 cents will likely run into a wall of trade selling. The increase in May and July open interest over the last couple of sessions is an indication that grower selling from Southern Hemisphere producers will intensify as the market moves higher.

Also, with the futures market paying more than mills in Asia, it will attract a lot of cotton to the board. In this regard we would like to remind readers that starting with the March 2014 contract, a US bale sitting in a certified warehouse can now very easily be converted into certified cotton under the new “Smith-Doxey Registration”, which allows the original bale class to be used for certification.

Plexus