Old crop futures hit a 6-month high today as traders apparently decided to ignore the fact that USDA didnΆt raise the export forecast in yesterdayΆs WASDE update for February, even though export sales to date are running nearly 500,000 bales ahead of where they need to be to warrant the current export forecast.

Supplies of QUALITY cotton are VERY tight and likely getting tighter, putting a real squeeze on anyone short cotton futures. They run the risk of mills with long hedges TAKING DELIVERY against futures contracts and dare not take the chance, even though deliverable stocks continue to rise. TheyΆre currently at 235,800 bales, the highest since late November.

The buying frenzy in old crop is now exerting a strong “coattail effect” on new crop as well, even though news from National Cotton Council last week was bearish: Producers intending to plant 8% more cotton in 2014 … to 11.26 million acres in the U.S. Further, the jury is still out on whether ChinaΆs radical change in domestic cotton policy is bullish or bearish.

All depends on where the government sets “target prices” for Chinese cotton producers. These producers have gotten used to selling to the government at prices at least 50% higher the global prices. If Beijing decides to offer target prices only slightly above current world prices, they will still be far lower than in the past three years and cotton acreage in China could drop even more than he 10% drop already anticipated.

But anyway we cut it, weΆre looking at a major increase in U.S. ending stocks for the 2014/15 marketing year, barring some kind of weather disaster, and average farm prices at least 15 cents per lb. lower than current December futures. For that reason, we are NOT advising abandonment of hedges already in place. To the contrary, weΆre looking for signs of a top in old crop as a signal to price MORE new crop. We doubt very much the old crop rally will take out last yearΆs highs in the low 90s.