The annuals of history gave us A Bridge Too Far, the story of the Allies failed attempt to bring World War II to a speedy end. Thursday's limit up cotton trading, while a sign of price events that will come in the future, was likely a bridge to far to assume that old crop cotton futures have escaped their bearish overtone. Bearish fundamentals continue to confront the New York May futures contract.
One should not feel comfortable that the May contract can hold the 75 cent level just yet; it could still fall back to the 71-72 cent level. However, the Thursday price bridge did move the new crop December to the 81 cent level; a more realistic price level for that new crop contract.
Yet, prices for that contract month are likely to slip back below 80 cents before the new crop bull begins to fatten up. With the New York December contract touching 81 cents, most Texas growers can contract for at least 76 cents. Too, most Texas Certified FiberMax growers can book cotton, basis the December contract for 77.50 to 78.00 cents.
The first glance is to suggest that nothing has changed since last week. The short term fundamentals are bearish while the long term fundamentals are bullish. Cotton futures will continue to take their lead from the soybean and corn pits, more so than from cotton fundamentals.
Yet, the one change that continues to move out of proportion is the cotton soybean price ratio. November soybeans have surged ahead to $13.80 per bushel. The shortage of oilseeds, coupled with the growing world demand for vegetable oil, has created a significance variance between the price of cotton and the price of cotton with respect to the farmers profit indifference between growing cotton versus growing soybeans.
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