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$1.22/#

Varner Brothers

China announced the subsidy it would pay for all of Xianjiang cotton at $1.22#. This covers a part of eastern cotton, perhaps 4 Mb. This support price is set for 3 years. Wonder why the US and Brazil dont team up and sick the WTO on China for breaking trade agreements?

 

Synthetic fibers and ingredients since last summer have moved up sharply in Asia. Below is a chart of purified terephthalic acid, a key chemical for synthetic fiber. It has dropped from 36.3c/# to 31.8c/# in 2 months, a move of 12.3% lower. China poly price has dropped from 86.2c/# to 81.0c/# in 6 weeks, a drop of 6%. PSF 1.4D has gone from 59.0c/# to 54.4c/#, a decrease of 7.8%. As long as synthetics were firm and moving upward in Asia, cotton could tag along. That no longer seems to be the case.

terephthalicacid.png

Varner View

Its St. Patricks Day, wear green, drink green, and think green. The Varners were Scots-Irish, coming from Donegal in 1680. They settled in South Carolina, with a few of them walking to Mississippi after the Yankees drove them out in 1865. And some grew cotton, and a few became cotton merchants. Regards the market, much has been made, and is being made of all of those mills trapped in short futures. They are as trapped as are the long specs. What will move the market will be changes in fundamentals. Sales have been responsible for the +10c move since Christmas. If they continue at a half mil clip per week, then price busts through 80c. We think they cool down, as have synthetic Asian prices.

Technicals

The split nature of tops in March is very common, as this same thing occurred a year ago March. Individual contracts tended to bottom out on 2/29/2016, but the spot low was not made till 3/10/2016. This was due to the roll from Mar to May. Same thing this year, with Mar making a high on 3/07, then when May became spot, it made a new high on 3/16. The average seasonal high date is 3/10, right between these two high dates. The latest Mar high was 3/26/2014, in the last 2 decades. Each calendar day after 3/10 is therefore 3% added to 50% that the high is in place. As of today, probability is 71% the Mar high is in place. On 3/26, it will be 100%.


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