The Softs Report
by Robin Rosenberg
The Spot Spot
3/12/2010
Coffee 03/12/2010
Life Time Trading Range 41.50 Cents - $337.50 per Pound
Trades on The ICE 2:30 AM – 1 PM CDT
Fundamentals have not changed. The International Coffee Organization has stated that Coffee consumption will reach 126 million bags during the 2009-10 season; consumption on the other hand is projected to reach 134 million bags. Mexican Coffee exports for February stand at 244,000 bags. February last, exports were in the 286,000 bag range. Exports were close to 610,000 bags from October 2009 through February 2010. This is down 10 percent from the same time period last season. The same thing holds true with smaller producers like Columbia and El Salvador. Their exports are running 10 percent below last season as well. Supplies of Central American coffee are tight as well. Colombian exports were 41 percent lower in February than last year, and Vietnam and Brazil have programs in place to warehouse Coffee, keeping it off the spot market. So as you see, the supply shortfall is still alive and well. ICE deliverable Coffee stocks have been steadily decreasing and stand at seven year lows!
Coffee looks to be ready to move higher from this level. One of the technical indicators I watch closely has indicated a reversal of trend for Coffee. The price action in the daily time frame has Coffee above the center Bollinger band and 9 bar moving average for the first time since February 22nd. The weekly chart shows consolidation in the area of the bottom Bollinger band. This week’s price action has taken the Coffee market up to test the 9 bar average. Bullish divergence is present in a number of areas. If you would like to know more about this just give me a call.
The El Nino in the Pacific Ocean is finally relenting. This should lead to a more normalized growing season. We do however need to keep things in perspective. Coffee is a staple item. And it’s gaining a toehold in areas of the world such as China. Just think what a Coffee drinking China could do to the supply demand quotient.
May Coffee must close above 132.75 Friday to turn the weekly trend up.
Do not trade without protective strategies such as stops and or options.
Cocoa
Life Time Trading Range $444 – $5379 per Tonne
Trades on The ICE 3 AM – 1 PM CDT
Weak global demand is presently putting a lid on Cocoa prices. The International Cocoa Organization (ICCO) has forecast a global supply surplus of 80,000 to 90,000 tonnes of Cocoa in their first forecast for the 2010-11 season. This forecast is based on production rising one percent and consumption increasing 2.5 percent.
For a number of years, Cocoa prices have had a built in war premium. A new Ivorian government is now in place. They are devoted to the recovery and stability of the country. If this comes to pass, future harvests will increase in size and Cocoa prices will be under pressure.
Last week’s Commitment of Traders report showed speculators net long more than 27,000 contracts. Corrective moves to the upside will more than likely be met with selling by these longs. I don’t expect to see any long lived moves to the upside in the near future.
The lower band of the weekly Bollinger setup comes in at 28.69. May Cocoa is presently trading at 29.15. Corrective action and short covering are making an appearance today. The week’s trading range for May Cocoa was 27.54 on the low end and a 29.29 high.
May Cocoa must close above 29.57 Friday to turn the weekly trend up.
Do not trade without protective strategies such as stops and or options.
Cotton 03/12/2010
Life Time Trading Range $26.84 – $117.20 per Pound
Trades on The ICE 8 PM – 1:30 PM CDT (Next Day)
USDA World Agricultural Supply Demand (WASDE) figures released Wednesday showed domestic usage of Cotton increased 100,000 bales. Ending stocks were lowered by 100,000 bales to 3.2 million. Exports for the week ending March 4, 2010 were released Thursday and indicated sales of 131,900 running bales for delivery in 2009-10. This is down one percent from the previous week and 50 percent from the prior four-week average.
For the first time since the 1980’s, U.S. Cotton exports are forecast to exceed U.S. Cotton consumption! Cotton prices had moved up from the low 50’s to the mid .80’s in just six months. The high price of Cotton is being fueled by a decrease in the U.S. cotton supply and a rise in demand as countries emerge from recession.
Cotton futures have continued to correct this week. The weekly chart view shows what I refer to as a bearish finger top with major resistance at 82.58. The market looks to be headed towards the 9 bar moving average which comes in at 78.77. The 38.2 percent Fibonacci retracement of the rally resides at 78.18. Support and buying interest could make itself known in this price area.
Cottons fundamentals have not changed. Cotton futures are just going through a normal corrective phase.
May Cotton must close below 82.40 Friday to turn the weekly trend down.
Do not trade without protective strategies such as stops and or options.
Sugar 03/12/2010
Life Time Trading Range 2.30 Cents – 66.00 Cents per Pound
Trades on The ICE 2:30 AM – 1 PM CDT
Last week Sugar closed below the weekly buy number of 29.92 to remain in a weekly downtrend. This week’s high was 22.40. Just take a look at Sugars price today. This illustrates how the weekly buy / sell numbers work. The weekly numbers don’t always give such clear cut signals, but this one most certainly did.
After a break of this magnitude, traders will be looking for some sort of corrective rally. I do see some hope for that to develop. The weekly Sugar chart shows the market piercing the lower Bollinger band. Generally, when a market has a sharp move from above the upper Bollinger band to below the lower band, a sideways chop or corrective rally will take place. The major rally that took place saw Sugar move up from 11.90 to 29.00. The 55 percent retracement of that rally sits just above at 20.45. If the Sugar market can manage two daily closes above this level, we may see a strong rally develop.
The cash market is chaotic. The most intriguing thing is that the Sugar supply deficit hasn’t changed, but many market participants have pulled their tenders to buy. There is nothing but bearish sentiment at the moment. You know that when everyone moves to one side of the boat it flips over. Jawboning Sugar prices lower will not work, if there is a supply deficit, buyers ought to cover a good portion of their needs before the market turns up on them.
May Sugar must close above 22.66 Friday to turn the weekly trend up.
Do not trade without protective strategies such as stops and or options.
Robin Rosenberg
PFGBEST Research Team
rrosenberg@pfgbest.com
The Soft Spot(3)
3/5/2010
Coffee 03/5/2010
Life Time Trading Range 41.50 Cents - $337.50 per Pound
Trades on The ICE 2:30 AM – 1 PM CDT
This once extremely strong market seems to have taken on the aura of the enduring Atlas, carrying the weight of the world on his shoulders. Bulls are concerned that higher production from Brazilian and Colombian new crops are inevitable. ICE coffee stocks of certifiable deliverable coffee are at seven year lows. This can be viewed as bullish or bearish. Many times the number seven signifies the ending of a cycle. Seven days in the week – And on the seventh day he rested – Seven colors in a rainbow – seven years of plenty followed by seven years of famine, and so on.
In technical analysis, an up or down run in price of seven periods is many times followed by a correction. With today being Friday, Coffee is toying with the 133.55 weekly sell number. I must say that the technical picture for Coffee looks to be bearish on a weekly basis. After rallying to the bottom of the previous consolidation, the market has again turned down and is close to breaking down and out of a down flag formation. If this were to happen, the down flag projects the market to the 120.00 area. There is a glimmer of hope here however. In the last five weeks, Coffee has pierced the lower Bollinger band four out of the five, but never closed below it. There is very strong support at this level. This week at this time – 8:36 CDT the band is sits at 129.02. It will vary depending on market action.
I will opt to take to the side lines and watch this market closely for trading opportunities.
May Coffee must close above 133.55 Friday to turn the weekly trend up.
Do not trade without protective strategies such as stops and or options.
Cocoa 03/5/2010
Life Time Trading Range $444 – $5379 per Tonne
Trades on The ICE 3 AM – 1 PM CDT
Supply tightness has been alleviated by a bountiful Ivory Coast harvest. The international Cocoa Organization ( ICCO ) has revised its global supply / demand forecast for 2008-9 from a deficit of 28,000 tonnes to a surplus of 32,000 tonnes. The ICCO is also predicting a global deficit of 18,000 tonnes for the 2009-10 growing season. A robust mid crop Cocoa harvest in West Africa could change that as well. We shall see.
As you can deduce from the above, our raging bull market has caught the flu. There are fewer reasons to be long Cocoa as each day passes. We may get a correction to the upside soon. This would be an opportunity to short this market.
Cocoa’s high in January was 35.12. As I write this, Cocoa is trading 28.64 and trending lower. Last week Cocoa closed below the bottom band of the Bollinger study and appears it will do so this week as well.
Some of you may remember me writing about the importance of highs and lows made by markets in the month of January. For the benefit of those that are new to the concept, I will cover it again. The January highs and lows of a futures market should be monitored closely each year. If the market is above the January high on February 1st you should consider the trend to be up. Conversely, if the market is below the January low it should be considered to be in a downtrend. Highs and lows posted in January will many times hold for three to six months.
I recommend selling Cocoa futures, buying puts or put spreads into strength.
May Cocoa must close above 29.96 Friday to turn the weekly trend up.
Do not trade without protective strategies such as stops and or options.
Cotton 03/5/2010
Life Time Trading Range $26.84 – $117.20 per Pound
Trades on The ICE 8 PM – 1:30 PM CDT (Next Day)
The USDA Foreign Agricultural Service reported Thursday that exports of U.S. cotton for the week ending 2/25/2010 were 289,400 running bales. This is a marketing year high, up 25 percent from the previous week and up 38% from the prior 4-week average. Traders had been looking for 200,000. Foreign demand and concern regarding the size of U.S. ending stocks were the foundation for the recent run up in Cotton prices.
U.S. Cotton Acreage for 2010 is expected to be 10.093 million acres – an increase of just under 850, 000 acres nationwide. The biggest increase will be seen in the Southwest, where Texas acreage will increase by over 400,000 acres. Texas will lead the nation by growing about 54% of the 2010 crop.
Cotton has seen additional corrective action this week. Even though the break in price did little immediate damage to the technical picture, there are reasons for bulls to be cautious. The weekly chart indicates penetration of and a close above the top Bollinger band for two weeks back to back. This is a rare occurrence in Cotton. Generally it takes place after a strong and prolonged one way move like the one just experienced. The weekly stochastic has gone flat and relative strength has lost upside momentum. This market may have just gone too far, too fast. The candlestick formation reflecting this week’s market action is decidedly bearish. Cotton has retraced a bit more than a 61.8% Fibonacci retracement of the break in price experienced from March to November 2008. Be on your toes, this market could turn down in a heartbeat! If you would like to see what I am referring to just send me an e-mail, I will send a chart to you. If you would like to discuss it, feel free to give me a call.
I have no trade recommendations for cotton this week. I will take to the sidelines and await opportunity.
May Cotton must close below 80.07 Friday to turn the weekly trend down.
Do not trade without protective strategies such as stops and or options.
Sugar 03/5/2010
Life Time Trading Range 2.30 Cents – 66.00 Cents per Pound
Trades on The ICE 2:30 AM – 1 PM CDT
Sugar prices, raw Sugar in particular, has come off close to 30 percent from its highs. This sell-off was for the most part due to long liquidation by commodity funds. Sugar prices are generally firm due to tightness in supply this time of year. This is primarily because we are between the harvest of the 2009-10 crop and the start of the 2010-11 growing season. We have just experienced a historical period of supply tightness. As it now appears, more normalized production is expected this growing season as compared to last. Whether or not it will come to pass is up to Mother Nature. So, here we have a situation where pockets of supply tightness still exist. And there are buyers hiding in the bushes awaiting new Brazilian production. We shall see how this all turns out later this year.
Here are a couple of items that are worthy of our attention. There has been talk lately that soda bottlers are curtailing the use of high fructose corn syrup (HFCS) and switching back to cane sugar as their sweetener of choice. Pepsi will be releasing both Pepsi and Mountain Dew Throwback in April. These are original recipe, cane Sugar sweetened versions of these beverages. I can see it now - "Sweetened with real cane sugar!" Ethanol, being the fuel of the day, could move higher as the macroeconomic picture improves and see a larger portion of the Brazilian Sugar crop diverted to ethanol production than presently planned. Both of these situations will weigh on supply and be supportive to Sugar prices.
Technically, Sugar has broken down to the consolidation that took place from September through November of 2009. Generally, after a market breaks out of a consolidation area like Sugar did and re-enters that price area it will test the low end of the consolidation. The low end is 20.50. A test of 20.50 could very well be in the cards. I see few, if any indications that the market is oversold. But a corrective bounce from here cannot be ruled out.
I reccommend selling Sugar futures or purchasing puts or put spreads on strength.
May Sugar must close above 23.92 Friday to turn the weekly trend up.
Do not trade without protective strategies such as stops and or options.
Robin Rosenberg
PFGBEST Research Team
rrosenberg@pfgbest.com
The Soft Spot(2)
2/26/2010
Boy, what a difference a day makes. It seems as if every day we are seeing conflicting economic numbers. Thursday’s durable goods number release was better than expected. But weekly initial jobless claims were higher than expected. At first glance, this tends to be confusing and muddies up the picture. My thoughts are that this is a sign that we are recovering from the recession. You know you’re near the bottom when you have to look up to see down!
Coffee 02/26/2010
Life Time Trading Range 41.50 Cents - $337.50 per Pound
Trades on The ICE 2:30 AM – 1 PM CDT
Coffee is in a corrective state at this time. Even though there are supportive fundamentals, the Coffee market has decided it’s time to take a breather. Most, if not all commodities, are eyeballing the negative macro-economic situation and heading lower. Eventually the fundamentals will take hold and knock some sense into the market, but always remember the market is right – don’t fight it. Listen to what the market has to say as it takes precedence over anything else.
The ICO (International Coffee Organization) released consumption numbers above expectations this week. Their production report came in lower than expected. Colombian has remained hot and dry and is desperately in need of rain.
Perhaps the threat of a Brazilian 2010-11 bumper crop is too much for the Coffee market to bear?
The daily chart indicates that a down flag is presently being traced out that could very well see May Coffee trade at 122.00. The daily MACD histogram at -.14 looks as if about to jump off a cliff, and the daily R.S.I. is at a bearish 39.00. The weekly chart shows the Coffee market is presently in a down trending mode.
May Coffee must close above 139.00 Friday to turn the weekly trend up.
Do not trade without protective strategies such as stops and or options.
Cocoa 02/26/2010
Life Time Trading Range $444 – $5379 per Tonne
Trades on The ICE 3 AM – 1 PM CDT
The Cocoa market is still very much concerned with economic recovery. The largest consumers of Cocoa are Europe and North America. The United States consumes 13%, the United Kingdom 9%, France 7% and Germany7%. There was news this week of a decline in German business sentiment for the first time in about a year. Thoughts are that more aggressive stimulus will be needed to right the economic condition of the United Kingdom. Economic problems in the Euro Zone continue to pressure Cocoa prices. This situation has seen funds covering long positions and taking to the sidelines. Until the macro-economic picture improves I don’t expect the funds to be active in Cocoa.
Ivory Coast main crop progress is further along than it was at this time last year, and mid crop Cocoa is developing very well. Favorable weather and the absence of disease are creating a bountiful crop. There are absolutely no threats to the supply side at this time. This does not bode well for Cocoa bulls.
Technically speaking, May Cocoa looks to be headed to the 25.00 area. I see no reason to be long Cocoa at this time. Any strength we see in this market will be attributed to short covering, and it shouldn’t be long lasting.
I recommend shorting Cocoa on strength by selling futures, purchasing puts, or put spreads.
May Cocoa must close below 30.80 Friday to turn the weekly trend down.
Do not trade without protective strategies such as stops and or options.
Cotton 02/26/2010
Life Time Trading Range $26.84 – $117.20 per Pound
Trades on The ICE 8 PM – 1:30 PM CDT (Next Day)
The latest U.S. Cotton export number came in at 113,300 tonnes. A bit on the low side, but as expected. Celebration of the Chinese New Year saw China removed from the marketplace. Three countries: Mexico, Turkey and China consume close to 50% of the U.S. Cotton crop. The only real threat to our exports is India, which produced 25 million bales for the 2009-10 crop year versus 12.5 million produced in the U.S.. Reduced world cotton stocks have been the engine driving prices higher. Deliveries against the ICE March Cotton contract stand at over 3100.
Being the leading indicator that it is, the market action in Cotton is telling us we are recovering from the recession. I know that there are economic numbers being released that don’t appear too rosy, but we must remember these are lagging indicators.
Cotton showed little weakness following its initial rally of twelve plus cents. It was however, enough weakness to get long futures or buy call spreads. Did you? Cotton again put in new contract highs late this week. The bears ought to put their wagons in a circle.
This bull move may see more than the estimated 10.5 million acres planted with Cotton. This ends three consecutive years of declines. Hopefully the growers will think long and hard before greed sets in.
I implore you not to chase this market. It will spank your account hard if your timing is off.
I recommend buying Cotton futures or call spreads on weakness.
May Cotton must close below 76.60 Friday to turn the weekly trend down.
Do not trade without protective strategies such as stops and or options.
Sugar 02/26/2010
Life Time Trading Range 2.30 Cents – 66.00 Cents per Pound
Trades on The ICE 2:30 AM – 1 PM CDT
Brazilian Sugar mills will be on the job in short order. Count on close to 40% being operational by the end of March. This is a couple of weeks earlier than usual. Two sizable Sugar tenders, one from Egypt and the other from Pakistan, have failed to take place. Ethanol prices have been working lower of late. This again opens the door for Brazil to funnel larger quantities of Sugar for use in edibles and less to ethanol refiners. So, even though Sugar production may remain steady, the supply of edible sugar will increase. The probability of a record harvest from Brazil is very high. The EU has approved the export of close to 100,000 tonnes of Sugar over and above the quota set by the World Trade Organization. This has been labeled as illegal by some market participants. I’d have to bet that those crying foul are long Sugar. What do you think? Funds, which had been heavily long Sugar, have been liquidating a large portion or their holdings.
There has been some buying interest at lower levels but this analyst does not see that as being bullish. Not long ago everyone and their brother were in need of Sugar. Now they are getting a double dose of good luck; the ability to buy at lower prices and almost as much as they want! This is actually bearish as it removes demand from the marketplace.
As I wrote last week, Sugar did not look good technically and could very well see the 23.00 area, and that’s just what it did! I don’t have a crystal ball, but the technical analysis skills I’ve learned over the last 30 plus years can be quite accurate at times. The major support resides at the 22.00 area at this juncture. I highly doubt that Sugar will close strong enough to turn bullish.
I recommend selling Sugar futures or purchasing put spreads on strength. (Rallies)
May Sugar must close above 26.57 Friday to turn the weekly trend up.
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.