wmeubank@ocp.kcmo.com
PRUDENTIAL SECURITIES, INC.
One New York Plaza, New York, New York
(October 20, 1997) COTTON: Baseball and the cotton market both obey the same laws of physics. For baseball. the law of gravity can tell us just where a baseball will go, and it never relaxes its grip. Our market often flies in the face of gravity, but not these past six months.
Once in awhile, we seem to reach an equilibrium, and that's been the case of late. For the last fourteen sessions, the closes have been bunched within an 82-point range. We haven't had a daily closing difference of as much as one cent all month long.
The 1998 December contract has been the one hero, valiantly trying to preserve our present acreage. The spot month managed to gain on Red December today for only the fourth time in almost a month. Since that time, the spread has relentlessly widened from 119 to 467 points, making it easily the best trade of the market. From August 1st, there have been 550 points in that trade.
The Red December is now back to the 7650 mark at which it made its debut on December 17th, 1996. At present levels, we'll probably lose a half million acres, but that's no sure thing. New-crop November beans closed at $6.86, no great magnet. New-crop corn, at $2.90, will find more friends. Had you been the best value buyer in the world and bought new-crop cotton futures on their low three months ago, you would only have three cents to show for your smarts, not much in all that time. I can remember when we raised the daily trading limits to three cents, and we were warned that the world would come to an end. I'll take my chances.
Since there are very few new tea leaves to read about the market, we are looking very seriously into what the World Series might tell us about future trends. However, consistent with the problems we have had all season, even this old reliable tool looks shaky to us. For starters, the best two teams in baseball are not in the Series, leaving form players with much less to go by.
Only the Indians have left any trail at all, and they haven't won since 1948. That year, the U.S. made its sixth largest crop ever, but traders must have had great difficulty staying awake. The range for Dec futures that October was 48 points, not quite as bad as what we're putting up with, but percentage-wise not so different. Prices did rally three cents into the spring, so growers can take some consolation with an Indians win.
The Marlins are the first brand-new team to make the Series since the Blue Jays in 1992. Cotton prices celebrated that victory by making their lows that year on October 28th, tacking on twelve cents over the next four months.
It would appear that a win by either team suggests high prices. However, this has been a difficult season in each universe, so don't bet too much on it.
Herman S. Kohlmeyer for Ernest Simon
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