wmeubank@ocp.kcmo.com
PRUDENTIAL SECURITIES, INC.
One New York, New York, New York
(November 21, 1997) COTTON: Prices continue to dig down deeper and deeper.
It doesn't seem to matter what happens. The Chinese keep buying, flying right into the face of all the information we get from there, and from all our friends who come back bearish. The more they buy, the more prices go down.
Consumption continues at dandy levels. That doesn't seem to matter either. Plug in 11½ million bales for the season, and forget about it. There's no controversy there.
Yet the market speaks, and it is never wrong. Oh, I know people who will disagree with it, but nobody has stayed for long in this business by arguing with it. This market has been going down for so long–but who can remember it that way?
In the big picture, we've had a bear market since leaving the days of dollar cotton back in 1995. For those who think that's too extreme a view, how about asking when was the high made for the current December contract. Back on May 1, 1996, more than a year and a half ago. That's how long this market has been going down. Know anyone bearish that long?
The specs have gotten this market right. From time to time, there's been too much company, but there shouldn't be many complaints. The market has produced better for them than much of the grains and tropicals. What some are sharpening their tools on now is a close under seventy cents for December. Should that happen, it will be the first time, save once for the Oct. since back in 1994. That alone should encourage another round of selling. The “big picture” chart players have their eyes on the mid-60's.
Now I know none of that makes sense to those of us who look at costs of production and other facts of life. However, the market is cruel, and it may have those low prices in its sights. Certainly we went too high in 1995. Now we are reversing the process. Just because the market is “cheap” doesn't mean it can't get cheaper. We search and search for what can con prices to put in their traditional post-harvest rally. That strong season tradition keeps us from turning our back on prices, but having said that, we can't make a good argument for the bulls yet.
What the market really likes to focus on is who does what to whom in the notices. Rarely does the notice activity reverse prices, though an old rule of thumb is that the appearance of a good stopper on first notice day can arrest the price decline. That certainly hasn't happened yet. For all keepers of trivia, we should point out that Big D has taken the December for seven of the past eight years, with differences on first notice day ranging from a 160-point discount to a 100-point premium. Now there's a bit of seasonal lore for you.
Herman S. Kohlmeyer For Ernest Simon
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