The Softs Report
by Robin Rosenberg
The Soft Spot(65)
5/18/2012
The Soft Spot
By Robin Rosenberg,
PFGBEST
(800) 611-6974
RRosenberg@PFGBEST.com
COFFEE
Forty Year Trading Range: 41.50 cents to $3.37.5 per lb
Trades on the ICE from 2:30 a.m. to 1:00 p.m. CDT
At this point in time Coffee prices remain under pressure. Brazilian producers had been holding back Coffee supply awaiting higher prices. Well, those prices never arrived and their selling took Coffee futures down near 40 percent over the last year. How’s this for an eye opener? Non – commercial investors began the month of May net short 18,000 contracts of New York Arabica Coffee futures. One of the largest concentrations of shorts in history. This is fuel for one heck of a short covering rally.
The Arabica Coffee market faces the possibility of a serious supply shortage in 2013-14 when Brazil enters an off year of it’s higher then lower production cycle. Brazil’s off year production will have to be large to avoid a global supply deficit. Many of the country’s growing areas are desperately in need of moisture. As the flowering period approaches drenching rains would be Ideal.
Meanwhile Robusta Coffee prices in Vietnam have reached a yearly high of $2.02 per kilo. Vietnamese Coffee officials expect the price will (want it to) rise further due to tight global supply. The International Coffee Organization has reiterated it’s warning cautioning buyers awaiting lower bean prices. Coffee consumption has reached an all time record of 137.9 million 60 kilo bags. Average annual growth stands at 2.5 percent since the year 2000. Coffee drinking increased nine percent in the Philippines and 22 percent in Vietnam last year. The global growth rate dropped to 1.7 percent.
Technical analysis is a methodology. The information below is not to be taken as trading advice or as a recommendation to buy or sell any commodity future or option. It may or may not agree with the fundamental analysis that appears above.
Weekly technical indications on Friday, May 18th: At this time the week’s trading range is 182.15-173.90, the last print is 181.30. The stochastic is in buy mode. RSI at 31.58 is stronger than last week’s indication of 26.82. The M.A.C.D. histogram at 0.37 is higher than last week’s reading of -0.59. The market has moved up to the 9 bar moving average. Higher prices will likely induce short covering. A weekly close of 174.90 or lower in July coffee will turn the weekly trend up.
COCOA
Forty Year Trading Range: $4.44 to $53.79 per Tonne
Trades on the ICE from 3:00 a.m. to 1:00 p.m. CDT
Brazil’s Cocoa grindings reached a record 4.09 million 60 kilo bags for 2011-12. Beating the previous record set in 2007-08 by five percent. Meanwhile Brazil’s 2011-12 Cocoa production was down nine percent. Brazilian Cocoa imports reached nearly 960,000 bags. That’s 33 percent more than during 2010-11 and one whopper of an increase. This is undoubtedly not a onetime occurrence. Expect global Cocoa demand to continue to rise. The world’s developing economies are coo coo for Cocoa.
Cameroon has approved the construction of a new Cocoa processing plant. Cie.Cherifienne de Chocolaterie, a Moroccan Cocoa processor expects to break ground for the new plant in June. Located in the port city of Douala, the facility is expected to process 40,000 tonnes of Cocoa annually. An investment of between $58 and $97 million will be required to complete the project. This seems like an awfully wide spread to me. This is a windfall for the country’s Cocoa sector. Until now only Sic Cocoa a division of Swiss based Barry Callebaut AG operated the one and only Cocoa processing plant in Cameroon. It has the capacity to process 30,000 tonnes of Cocoa annually. Cameroon has a 30 percent stake in it’s operation. There has been no mention of a partnership in the new endeavor. My guess is that the country will own a similar percentage of the new operation.
The aroma of freshly processed Cocoa wafts through the air just north of downtown Chicago. Bloomer Chocolate Company, once a mom and pop operation is now the largest Cocoa processor in North America. The company is a sizable investor in Cocoa sustainability projects. Having already invested $13 million the company expects to invest $45 million by 2020. According to Blommer, by 2020 Cocoa demand could exceed production by one million tonnes. That’s equal to 25 percent of the current global supply. Growth will be driven by the rapidly developing economies and expanding populations of Brazil, China, India and me!
Technical analysis is a methodology. The information below is not to be taken as trading advice or as a recommendation to buy or sell any commodity future or option. It may or may not agree with the fundamental analysis that appears above.
Weekly technical indications for Friday, May 18th: At this time the week’s trading range is 23.03-22.20 the last print is 22.70. The stochastic is in buy mode. RSI at 45.32 is slightly weaker than last week’s indication of 47.38. The M.A.C.D. histogram at 23.37 is slightly higher than last week’s indication of 23.28. The market is trading on the 9 bar average and center Bollinger band. A weekly close of 22.87 or lower in July cocoa will turn the weekly trend down.
COTTON
Forty Year Trading Range: 26.84 cents to $2.27.00 per lb.
Trades on the ICE from 8:00 p.m. to 1:30 p.m. CDT (Next Day)
The UDSA has released its first Cotton forecasts for the 2012-13 marketing year. According to the USDA the farmgate price for Cotton has the potential to fall to 65 cents a pound on the heels of the largest inventories in history. Global output is forecast to decline by 7.7 million bales in 2012-13.
Production is expected to fall in the majority of the world’s growing areas. Exceptions being the U.S. and the French speaking countries of Africa. China’s Cotton crop is forecast to drop by 3.0 million bales and India’s is forecast to drop by 1.5 million bales. The estimates come after a multitude of surveys that indicated reduced sowings of Cotton this growing season. U.S. Cotton production is forecast to increase by 17 million bales. The increase is not due to additional sowings, but reflects an expected lower rate of abandonment compared to last season when Texas experienced severe drought.
Thrips, Leafhoppers, False Chinch bugs and Plant bugs are present in some areas of the southeast and mid-south U.S. Cotton growing areas. So far I have heard no reports of Boll Weevils and that’s a good thing. Boll Weevils have been virtually eliminated from U.S. growing areas. Field reports indicate that the insect problem is much less severe that had been expected. It’s still very early in the growing season and much Cotton remains to be planted. Use of insecticide and herbicides not only kills off insects and weeds, it slows down the development of the Cotton plant as well. The less spraying the better.
Technical analysis is a methodology. The information below is not to be taken as trading advice or as a recommendation to buy or sell any commodity future or option. It may or may not agree with the fundamental analysis that appears above.
Weekly technical indications for Friday, May 18th: At this time the week’s trading range is 80.65-76.26, the last print is 77.17. The stochastic is in sell mode. RSI at 30.87 is weaker than last week’s indication of 32.42. The M.A.C.D. histogram at -1.27 is lower than last week’s reading of -0.67. Cotton futures fell to 21-month lows this week. A new leg to the downside has begun. View rallies to resistance as selling opportunities. A weekly close of 78.80 or higher in July Cotton will turn the weekly trend up.
SUGAR
Forty Year Trading Range: 2.30 cents to 66.00 cents per lb.
Trades on the ICE from 2:30 a.m. to 1:00 p.m. CDT
Speculators have cut the size of their net long position in Sugar to two year lows. It’s exceedingly possible the last move down in Sugar produced a perfect setup for a sharp move to the upside. The latest CFTC Commitments of Traders data indicates funds closed out 20,387 longs through May 8th. This is generally the time of year Sugar moves higher. The Muslim holiday of Ramadan is likely the reason. So, the longs have abandoned ship and the market has a very good chance of moving higher. These factors alone could slingshot the market higher with a vengeance. Personally I’m not so sure it will. The risk-off psychology permeating the global economy may put a stop to it. Expectations of increased Sugar exports from India and Improved production from Thailand have eliminated earlier concerns that the Brazilian crop would be disappointing.
It’s old news that India lifted all restrictions placed on Sugar exports. However exporters will need to register their export contracts. A maximum of 10,000 tonnes will be allowed per application. An exporter can submit as many applications as they like – one at a time. Exporters must ship their approved applications within 30 days following approval. India’s government believes this will eliminate volatile price swings in it’s domestic Sugar market.
Technical analysis is a methodology. The information below is not to be taken as trading advice or as a recommendation to buy or sell any commodity future or option. It may or may not agree with the fundamental analysis that appears above.
Weekly technical indications for Friday, May 18th: At this time the week’s trading range is 20.93-20.07, the last print is 20.70. The stochastic is in sell mode. RSI at 37.12 is stronger than last week’s indication of 33.31. The M.A.C.D. histogram at -0.46 is unchanged. The market continues to trade along the lower Bollinger band. I have grown suspicious of this bear market. The Muslim holiday of Ramadan begins July 19th this year. Muslim nations begin stockpiling Sugar at this time of year for use during the holiday. Usually this drives Sugar prices higher. Dips to support should be viewed as buying opportunities. A weekly close of 20.36 or higher in July Sugar will turn the weekly trend up.
Do not trade without the use of protective strategies such as stops and or options.
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.
Robin Rosenberg
PFGBEST Research Team
rrosenberg@pfgbest.com
3/04/2011
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