What is in this article?:
Growers need to realize that cotton prices are in a cycle. They don’t just go up and stay there.
Consider forward pricing
Arnold recommends cotton producers consider forward pricing this year. “I don’t think there’s ever been a time in history when we went into a crop with new crop prices above $1. Put options are something we should consider this year, but because of how high prices are, they won’t give us the protection they used to give.”
Nobody knows what prices will do, he says, and because of that, we must respect the market and look at the best indicators we have. There are two ways to analyze markets, explains Arnold, a technical analysis and a fundamental analysis.
“I use technical analysis which is a study of charts and study of momentum. Trends are made of peaks and troughs, and if you look at charts, you can see momentum in the markets. There are bear markets and bull markets. You can be in an uptrend, a downtrend or a sideways trend at any given time, and trends come to an end, like all good things.”
Each time a market trend pulls back, says Arnold, it’s testing the previous peak.
“Most people want to know what’s running the market, whether it is China or something else. That’s fundamental analysis. With technical analysis, it really doesn’t matter what’s going on in the world because a chart already factors that in. A chart may illustrate weekly trades or monthly trades.
“One thing is for certain. At some point, the uptrend will run out of gas. We’ll see that with cotton, we just don’t know when.”
Pullbacks are a natural part of trends, he says, but the problem is that you have to watch it carefully because you can’t tell if a market has peaked until you have a correction and the market turns back up to re-test that high.
“We need to watch the cotton market to see if it does what the feeder cattle market has done. If it does, then we need to be aggressive about pricing.”
Arnold urges growers not to buy into everything the media is saying about the cotton market. “We’ve heard before that cotton is at a new level of demand, and each time within 10 months, cotton busted. I encourage you to track markets. It’s an exciting time, but don’t get caught holding the bag. A chart doesn’t lie, and it factors in all worldwide fundamentals.”