Cleveland says, “We need to understand that it took only one season to get into an excess supply situation; conversely, it would take only one season to go the other way to a tight supply. We’re certainly set up to go the other way with the drought expectations here in the U.S. and the anticipated 10 percent to 15 percent acreage reduction around the world. We could cure the excess supply situation in one season or less.”

The long term technical picture for cotton “has been somewhat bearish,” he says, “but in the last three weeks we’ve seen very large amounts of speculative money come back into the cotton market — and the market as been up, up, up.

“These huge funds are not coming into cotton looking for a penny, or two cents or four cents; they’re looking for 10 cents or 20 cents — moves that could take the market to $1.10 or $1.20.

“Several technical analysts now have positions suggesting that the market is now pointing to $1.18-$1.20, basis May/July. They are anticipating that we’ll have higher prices, based on the outlook for lower acreage here in the U.S. and worldwide.

“The funds are operating on the theory that perception is reality, and they think the charts are clearly suggesting that the price will move to $1.20. Some of the Elliott Wave theorists are looking for $1.18 on the May/July contract.”

Cleveland says he’s “somewhat optimistic about cotton in the short term, more optimistic in the long term.

“I think there’s good reason to be optimistic. We took the market down to the 85-cent level in November, which was a little bearish, and we’ve not been able to get it back above $1. It was trading at 98-99 cents today (Jan. 23).

“Last week saw extremely strong export sales relative to what we had expected, 190,000-200,000 bales — much better than the 50,000 to 60,000 we’d seen for several weeks, and before that we went for two months with negative sales due to cancellations.”

Cleveland says he hadn’t thought cotton would drop to the 85-cent level it hit in November, and “I think most chartists’ opinions are that it was a drop-dead bottom.

“I think we can be very positive about cotton. But, if we get a lot of rain in West Texas over the next two months and plenty of moisture everywhere else, then we’d have to be concerned about the possibility of staying around 88 cents to 90 cents, with a potential range of 85 cents on the low end to $1.20 on the high end.

“I think we can make a realistic case for the market not going below 85 cents. I think it’s going to be easier to take it up to 98-99 cents than to take it down to 85 cents — but we can’t write off a drop to 85.

 “There’s a lot of demand out there — we just haven’t been able to get the price where the mills would begin to buy. The anticipation now is that they seem a little better off, despite all the negative things we read about the economy, and that pent-up demand from consumers is slowly coming back into the market.

“We’ve seen a firm base for demand, but supply, in the short and medium term, is going to be more important than demand. If they get a lot of rain in West Texas, it’s going to take the market down.”