I Need A Do-Over

In golf, it is called a Mulligan – a do-over.

I was a golfer once and I played terribly with a group of terrible golfers. The perceptible difference between me and the others was that they were merely terrible – I was dangerously terrible. I had a slice so bad I could knock someone out of a golf cart two fairways over. In our group Mulligans were a given. You could hit as many tee shots as you wanted, then pick the one that was least bad. Sometimes we’d go through a case of beer trying to get off the first tee. (I might have made some of that up.)

But back to the Mulligan. I went out on a limb in our December issue and made some price predictions for new-crop cotton. I whiffed.

I should have known better than to write about something as time-sensitive as commodity prices in a monthly magazine. So I took my first Mulligan in our bi-weekly CottonGrowerExtr@ e-newsletter.

I’m taking my second one now.

Back in December, I wrote that the fundamentals – higher consumption, lower acreage and falling stocks – were in place for new-crop cotton to at least move back to the December ’08 life of contract high of 76.40. What I didn’t see coming was that the most recent USDA production report would show a U.S. per-acre-yield of 859 pounds – a record. That was a fundamental changer, and as you might expect, old-crop cotton prices dropped and dragged new crop with them.

I heard this story a long time ago, and I should have learned from it. There was this speculator trading Frozen Concentrated Orange Juice (FCOJ). A USDA report was about to be issued on freeze damage to the Florida orange crop. He had a hunch the damage was going to be worse than the trade expected, so he bought FCOJ futures. The USDA report the next day confirmed his hunch, and he made a large fortune. In front of another USDA report, his hunch was again that damage was going to be bad and he went long. Once more he was right. But so was everyone else, and the information had already been discounted in the market. What got him was breaking a classic market rule – buy the rumor, sell the fact. By the time he reacted, other speculators had liquidated long positions, and the smart ones had gone short. Caught in the price freefall, he couldn’t get out quickly enough to prevent his large fortune from becoming somewhat less than a small fortune.

As I write this, we know what the fundaments are for the December ’08 contract and prices are trending, waiting for news. I suspect it will come from China, and when it does, new-crop cotton prices will take off – one way or another. I won’t dare predict which way – I’ve learned my lesson.

In this issue, we announce the results of the annual Cotton Grower Acreage Survey. You told us that there will be 10.482 million acres of cotton planted in ’08, which is 3.3% lower than the USDA’s final ’07 figure of 10.596 million acres.

You’re free to take all the Mulligans you want before planting.