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(March 21, 2002) COTTON: Short-term trends have remained in tact over the last few weeks. Short and long-term indicators are reaching levels which may indicate a correction is due. A close below the 38-cent level basis the May cotton would turn short-term trends back down. For the most part, prices have been trading inside this range since last November. There was a breakdown in late February, but prices were able to hold a 2/3rds retracement level and prices were able to turn back up. There has been little news to move prices in either direction which may be the reason the market has been reluctant to move significantly higher or lower. Out of three possible directions, the best scenario for producers would be to buy December put options and see a sharp drop in prices into harvest. Put option premium added to LDP's would offer lots of price protection. On the other hand, prices would need to rally significantly higher (above 65-70 cent level) to offer a decent pricing opportunity as many producers would have to factor a negative basis from 3-12 cents off the board price. The worst case scenario would be for prices to continue trading between the 40-50 cent level basis the December contract which would eliminate a large LDP payment, possibly do little to help put option performance and those with a large negative basis would probably have to depend on loan prices. A new Farm Bill would probably stimulate a move in one direction or the other. Weather will also be a factor into planting.

SHORT-TERM TREND--Trends are higher.

LONG-TERM TREND--Trends are turning toppy.

 

Bryon Fillpot

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