The Softs Report
by Robin Rosenberg
Soft Spot
11/19/2009
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NOTE: December Cocoa, Coffee and Cotton have all entered their expiration cycle. Speculators should be trading contracts other than December 2009. I recommend the March 2010 contract where volume and open interest are highest. I will be discussing the March 2010 contracts in these commodities this week.
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Coffee 11/19/2009
Life Time Trading Range 41.50 Cents - $337.50 per Pound
Trades on The ICE 2:30 AM – 1 PM CDT
My how prices change! The coffee market has taken on quite a bullish tone over the last few trading sessions. The supply of high quality Brazilian Coffee is very tight. Adding to this tightness is the Brazilian government’s plan to purchase nearly one million bags of coffee this month for storage. This alone has caused the basis for Brazilian coffee to jump as much as ten cents! The Columbian harvest has come in at much lower levels than expected. This has all resulted in firm demand for Central American Coffee. Later this summer (South American Summer) the Brazilian government’s put program for coffee growers will begin. This program could add in excess of one hundred seventy five million bags to those already in storage. Other producers have experienced a drop off in exports. This market is poised to work higher with an objective of 150.00. Buy Coffee on dips or consider purchasing call spreads.
Keep in mind that a full blown bull move in Coffee could take prices above 200.00! See chart below.
Do not trade without protective strategies such as stops and or options.
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Cocoa 11/19/2009
Life Time Trading Range $444 – $5379 per Tonne
Trades on The ICE 3 AM – 1 PM CDT
All this talk of run down plantations, political unrest and wet weather seems to have caused the Cocoa trees to flourish!
The overly large quantity of Cocoa arriving at Ivory Coast ports indicates that the rainy weather improved the Cocoa crop. As of November 15th 256,000 tons had arrived. Last year that figure was 161,554. Yields are far in excess of expectations.
Cocoa is presently rebounding after taking a hit of close to 4.00 per tonne. The low of the move was 31.02. This rally could take the market somewhat higher. Resistance above the market is 34.40. To participate sell into sharp rallies or purchase put spreads.
As illustrated below you can see that the majority of the worlds Cocoa supply originates in Africa. South America and Southeast Asia provide us with large quantities as well. All Cocoa growing regions are within 20 degrees of the equator.
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Do not trade without protective strategies such as stops and or options.
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Sugar 11/19/2009
Life Time Trading Range 2.30 Cents – 66.00 Cents per Pound
Trades on The ICE 2:30 AM – 1 PM CDT
Sugar is plagued by a shortage of supply that is not going away anytime soon. India will be importing four to eight million tonnes of Sugar this year. India’s yearly sugar consumption is estimated at twenty three million tonnes. At this early stage the yield of next seasons Sugar crop has been guesstimated to be nineteen million tonnes. The countries agriculture ministers are predicting a shortfall of four million tonnes. Wedding season in India will soon be here and usage of Sugar will climb dramatically at that time. Rainy weather is wreaking havoc with Sugar crushers in India’s most important sugar producing area causing India’s spot sugar prices to spike higher.
High Sugar prices have created a situation where refining sugar for consumption is more profitable than using Sugar for ethanol production. Brazil powers a large part of its vehicle fleet with ethanol that is usually produced from Brazilian sugar. Well, Brazil has made plans to import a large amount of ethanol this year as the profit from refining sugar for consumption is much more profitable.
The tightness in the sugar supply is very similar to supply deficits that occurred in the 1970’s and 1980’s. Much higher prices for Sugar could be on the horizon. Buy on dips or consider purchasing bull call spreads to participate. Refer to the chart below.
Do not trade without protective strategies such as stops and or options.
Cotton 11/19/2009
Life Time Trading Range $26.84 – $117.20 per Pound
Trades on The ICE 8 PM – 1:30 PM CDT (Next Day)
U.S. and world ending stocks are declining and the macroeconomic situation is continuing to improve. One would think Cotton usage would be increasing but that just isn’t happening. The market is in a distinct uptrend but without an increase in exports rally attempts should be capped by trade sellers. Resistance lies at 75.00 in the March contract. Weather in key growing areas has turned dry which will help speed up the harvest. If there was damage to the crop due to rainy weather it should now begin to make itself known. Last week’s USDA export number was 117,300 tonnes. This week’s number, released this morning came in at 235,700 tonnes. This is a better number than last week but had been expected. If demand does not improve and open interest stabilize and begin to increase lower Cotton prices are on the horizon.
Do not trade without protective strategies such as stops and or options.
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800 611-6974 / 847 681-0679 Fax
Robin Rosenberg
PFGBEST Research Team
rrosenberg@pfgbest.com
The Soft Spot(3)
11/12/2009
TRADE RECOMMENDATIONS UPDATE 11/18/09 10:00 A.M. CST.
Long Dec Cocoa from 3140. Sell at 3165 to exit position.
Bill Gordon Senior Technical Analyst 312 563 8280 800 935 6493 bgordon@pfgbest.com
What goes up – well you know the rest. We have some very interesting technical developments to analyze this week. Let’s revisit the massive de-leveraging break of 2008-2009. The Reuters Jeffries Commodity Channel (Old CRB) Index has been stalled at the 38.2% Fibonacci retracement of that break for more than a month now. The Dow Jones has completed a 50% retracement of same. These two examples indicate that long positions should have stringent risk management plans in place. Yes, I know we always should but there are those of us, myself included that sometimes play the “I will watch it for a while” game. Don’t – not now! Those of you that have ridden a roller coaster know that clink – clink – clink sound of the chain pulling the coaster to the top of the hill. You also know that moment of silence as the coaster disengages from the chain prior to racing down that first hill. It’s my contention that quite a large number of markets have entered that moment of silence!
Coffee 11/12/2009
Life Time Trading Range 41.50 Cents - $337.50 per Pound
Trades on The ICE 2:30 AM – 1 PM CDT
There’s a leak in the boat!!! Coffee has given in to bearish fundamentals. The Vietnamese harvest is now underway in earnest and the bumper crop of Brazilian Arabica due next summer is pressuring coffee prices.
Presently the supply of high grade coffee is tight. Talk of increased coffee purchases by the Brazilian government for storage and a Broca worm infestation in Columbia. This market is reacting negatively to bullish news. This is not good news for coffee bulls as it has failed to create the support needed to stabilize coffee prices. Thursday, as I write this, the market had been down as much as 1400 points to 130.00 from its recent high of 144.00. The breakout to the downside has been confirmed.
On a weekly basis, from a technical standpoint, I deduce that a line has been drawn in the sand. The center band, or 20 day moving average of the Bollinger Band study, is presently at 128.28. Parabolic support comes in at 130.00. The 9 bar moving average rests just above at 133.97. December coffee settled at 130.10. What comes next should be extremely interesting.
Do not trade without protective strategies such as stops and or options.
Cocoa 11/12/2009
Life Time Trading Range $444 – $5379 per Tonne
Trades on The ICE 3 AM – 1 PM CDT
Cocoa broke down to the 30.00 area this week and Wednesday snapped back smartly from the oversold condition created by the initial break. Buying interest increased with Cocoa trading at mid October prices. The U.S. dollar was also a factor in Wednesdays rally as it made new lows for the move down. London cocoa prices surged higher as the British Pound worked lower. On the macroeconomic, China reported an increase in industrial output. With gold and so many other markets showing strength one could find no reasons to sell cocoa – so why not buy it?
So, was cocoa making new highs? No, it was not. What it was doing was correcting from an oversold condition. There may be some further upside strength in this technical rally although the daily trend has turned down. Cocoa arrivals at Ivory Coast ports have been far above expectations. The weather in the growing areas continues to be positive to growing conditions. The larger than expected crop is putting pressure on cocoa prices.
Do not trade without protective strategies such as stops and or options.
Sugar 11/12/2009
Life Time Trading Range 2.30 Cents – 66.00 Cents per Pound
Trades on The ICE 2:30 AM – 1 PM CDT
With commodities in general taking on a bearish tone sugar comes complete with a supply deficit. I suspect that sugar will show resilience as buyers come into the market on dips. Sugar has been in a trading range for three months. It is now trading in the extreme lower portion of that range. As a former floor trader I would have to say “Buy sugar – sell the world”. But I won’t do that. What I will say is that if you want to take advantage of a down move in commodities don’t short the sugar as there are other markets with greater opportunity.
There is word out of Mexico that upwards of 45,000 tonnes of sugar may have suffered damage from heavy rains in the growing areas. If that is the case 1% of Mexico’s sugar production will be removed from the supply quotient. The positive economic news out of China and the needs of those countries with supply deficits should serve to support the market.
Do not trade without protective strategies such as stops and or options.
Cotton 11/12/2009
Life Time Trading Range $26.84 – $117.20 per Pound
Trades on The ICE 8 PM – 1:30 PM CDT (Next Day)
This week cotton traded at its highest level since October of 2008. The market quickly reversed, broke sharply and made four week lows. This market action is significant in that it shows the cotton market has taken on a significantly bearish tone. Until now the slow harvest, real and imagined damage to the crop from rainy weather in the Mississippi Delta and increased world demand had been enough to support the market. Game over! Drier weather is moving into U.S. cotton growing areas allowing the harvest to speed up.
When markets react bearishly to bullish news it’s time to step aside if you’re long or consider taking a short position. There are three things to remember when this type of thing happens The market is the market is the market, It is never wrong.
If you do enter a short position don’t sell the breaks. Wait for an up day and sell into the strength. Remember this rule and you should save yourself a lot of aggravation. In an up trending market buy the weakness (breaks) of the strength. In a down trending market sell the strength (rallies) of the weakness.
Do not trade without protective strategies such as stops and or options.
Robin Rosenberg
PFGBEST Research Team
rrosenberg@pfgbest.com
The Soft Spot(2)
11/5/2009
Coffee 11/5/2009
Life Time Trading Range 41.50 Cents - $337.50 per Pound
Trades on The ICE 2:30 AM – 1 PM CDT
There are quite a few reasons for coffee to remain in an uptrend. Let us review some. First and foremost is the continuing strength of gold and weakness in the U.S. dollar. This alone has brought a large amount of investor money into the coffee market. Open interest has increased upwards of 25% in the last month! There has been a huge decline in exchange coffee stocks. Columbian production is well below expectations. The effects of El Nino in the Pacific Ocean have created exceedingly dry weather in the growing areas of Columbia. On the other hand, Honduras is awaiting arrival of a hurricane which could wreak havoc on their coffee crop as it is now ready for harvest. Now that the present has been covered, let us look into the future. We await news of the Vietnamese harvest which will soon be in full swing. The quality of flowering for next year’s Brazilian crop has yet to be determined. Columbia and other growers of light Arabica coffees have taken advantage of large premiums over the futures market to purchase and increase the use of fertilizer as well as apply other enhancements that will benefit next season’s crop. This situation leads me to believe that spreads buying the front month contracts and selling the back month contracts would be a reasonable way to trade this market.
Do not trade without protective strategies such as stops and or options.
Cocoa 11/5/2009
Life Time Trading Range $444 – $5379 per Tonne
Trades on The ICE 3 AM – 1 PM CDT
Cocoa, as I see it, is acting toppy here. The supply tightness that was thought to exist earlier this harvest period is disappearing. Cocoa is trading near thirty year highs and is in need of bullish supply side news to continue trading in this area. The amount of cocoa arriving at Ivory Coast ports is not only larger than expectations, but also of acceptable quality. Good rains through November will be necessary to ensure a good Ivory Coast harvest. We are about ten days from first notice day for the December contract. There are some mighty large profits on the books of the longs. In a bullish market scenario, it is common for the longs to roll to the next month by selling their holdings in the December contract and buying the March 2010 contract. With good harvest news emanating from the Ivory Coast and a lack of bullish news, profit taking could serve to cap rallies at this time
Do not trade without protective strategies such as stops and or options.
Sugar 11/5/2009
Life Time Trading Range 2.30 Cents – 66.00 Cents per Pound
Trades on The ICE 2:30 AM – 1 PM CDT
Sugar reached 28 year highs in early September and has been in a sideways trading range ever since. This backing and filling action should be construed as bullish market action. The market is shaking off the overbought condition created on its trek to recent highs. After two years of disappointing harvests in India, sugar usage has drastically outpaced supply. Tightness of supply has not been this evident since the early 1970’s and 1980’s when the highs were 60 cents and 45 cents respectively. The commitment of traders report shows there is still room for speculative buying. There have been no signs of a major top having been put in and open interest is at a manageable level. Bullish undertones have created an environment that should cause sugar futures to begin another leg to the upside; 29.00 being the first objective.
Do not trade without protective strategies such as stops and or options.
Cotton 11/5/2009
Life Time Trading Range $26.84 – $117.20 per Pound
Trades on The ICE 8 PM – 1:30 PM CDT (Next Day)
Rain, Rain let’s keep it that way! The wet weather in the Mississippi Delta seems to be all that’s holding cotton prices where they are. The bolls are open and suffering varying degrees of moisture damage. One report said the Arkansas cotton crop is heavily damaged with no hope to recover. Export sales activity has been spotty at best. The weather is forecast to be dry in the Delta through early next week and extremely dry in the Texas growing areas. This should serve to put a lid on cotton prices over the next few sessions. After putting in a high of 69.49 the week of 10/12/09 cotton has been in a trading range bounded by 69.26 and 66.10. Presently the weekly chart has resistance pegged at 68.93 which is the top band of the Bollinger study.
Do not trade without protective strategies such as stops and or options.
Robin Rosenberg
PFGBEST Research Team
rrosenberg@pfgbest.com
There is a substantial risk of loss in trading futures and options.
Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. PFGBEST, its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.