The Softs Report

by Robin Rosenberg

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The Soft Spot(74)

7/6/2012

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

Commerzbank has joined ranks with other major agricultural lenders by forecasting higher prices for Brazilian arabica coffee. Citing weather damage, the bank expects arabica futures to gain on robusta futures. The Brazilian arabica coffee crop had been expected to be a bin buster. Mother Nature provided a bit too much in the way of inhospitable weather.

Brazil’s crop was faced with frost and drought conditions early in it’s development. Recent heavy rains could adversely affect the quality of the beans. When coffee trees are hit with heavy rain at this time in their development many ripe coffee cherries are knocked to the ground. Increased labor costs prevent many growers from picking them up.

The USDA estimates Brazil’s 2012-13 arabica output to reach 40.2 million 60 kilo (132 lb) bags. The 2012-13 growing season is an ON year in the country’s alternating ON / OFF production cycle. During the 2010-11 ON season Brazil’s arabica production stood at 41.8 million 60 kilo (132 lb) bags. So we have ON year production that is smaller than the prior ON season. Hopefully this is not the beginning of a trend.

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, July 6th: At this time the week’s trading range is 187.10-169.70, the last print is 177.80. The stochastic remains in buy mode. RSI at 42.97 is stronger than last week’s indication of 37.36. The M.A.C.D. histogram at 0.02 is higher than last week’s reading of -0.15. Coffee has had a 20 cent rally over three weeks time. The market pierced the center Bollinger band, reversed and now trading just below it. Buy on sharp breaks to support and use sound money management. A weekly close of 150.60 or lower in September Coffee will turn the weekly trend down.

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

Second quarter grinding data will be released later this month. Traders expect Europe’s to be poor based on the region’s economic woes. Funds are holding a sizable short position. If there are surprises in that data cocoa futures will move higher in response. Short term weather forecasts are predicting rain through week’s end. Rain, rain and more rain. Cocoa trees could use some sunshine. It would assist in producing a good flowering season for the 2012-13 crop.

The Nigerian government has officially announced that cankerworm attacks in Ondo state have been brought under control. In addition, the 2012-13 main crop is not expected to be negatively affected. I don’t believe that for a New York minute! Ondo state produces 40 percent of Nigeria’s cocoa. There was no mention of this year’s mid crop. Often times that which is not said is more important than what is. This leads me to believe Nigeria’s mid crop will be very poor. Nigeria was once one of the largest producers of cocoa in West Africa. Cocoa exports made up a substantial chunk of the country’s foreign exchange earnings. This is not so today.

Weather plays an extremely important role in the development of cocoa. Rainy season begins in May and runs through October. The dry season runs from November through April. Cocoa trees flourish in the lower growth of the tropical rain forest in the shade. The temperature must fall between 66 F and 92 F with high humidity. Evenly distributed monthly rainfall exceeding 1500 mm (59.1”) is necessary. Rainfall of less than 100 mm (3.9”) per month for three months running will severely damage cocoa trees. 

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, July 6th: At this time the week’s trading range is 23.75-22.61 the last print is 22.96. The stochastic remains in buy mode. RSI at 49.57 is stronger than last week’s indication of 49.36. The M.A.C.D. histogram at 17.8 is higher than last week’s indication of 9.377. Buy on breaks to support and use sound money management. The present weekly bar is signaling that change is in the wind. Stay alert – Stay very alert! A weekly close of 21.65 or higher in September Cocoa will turn the weekly trend up.

 

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)

According to USDA statistics U.S. acreage planted with cotton stands at 12,635 million acres. This agreed with trade expectations, but was lower than March’s estimate of 13,155 million acres.  Last year’s figure was 14,735 million. Hot, dry weather in major growing areas is raising the hackles of cotton farmers. My view has not changed. The lows may be tested; but I certainly would not sell into a retest.

 China cancelled the major portion of a huge order for U.S. cotton. This reeks of market manipulation, plain and simple. The order caused the soon to expire July contract to rally as high as 89.48. The market then reversed and fell to 67.70. There is speculation that a group of traders holding large long positions conspired to create a price spike to the upside. They got there spike alright. Speculators holding short positions were out smarted by the rally and forced to liquidate. This was a short squeeze if I ever did see one. An official statement from China would be welcomed. Who do you think sold their sold the contracts back to the shorts?

Egypt’s new government will be allowing an increase in cotton exports. Planting intentions are one thing, but actual plantings are the real thing. Cotton plantings in Northern Hemisphere are lower than was originally expected. The country’s cotton spinners are presently facing extremely tight domestic cotton supplies. In an effort to alleviate the situation Egypt’s government will be issuing permits to import cotton sometime this fall. These will be the first cotton import permits issued since October 2011. Egypt’s cotton imports in 2012-2013 are expected to reach 530,000 during the 2012-13 marketing year. A 77 percent increase above 2011-12.

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, July 6th: At this time the week’s trading range is 73.05-70.05, the last print is 70.05. The stochastic remains in buy mode. RSI at 30.01 is stronger than last week’s indication of 31.05. The M.A.C.D. histogram at -1.35 is higher than last week’s reading of -1.86. Buy on breaks to support and use sound money management. A weekly close of 66.88 or lower in October Cotton will turn the weekly trend down. 

 

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

Kingsman of Switzerland has lowered it’s estimate for Brazil’s center south by 3 percent to 31.8 million tonnes. Many agricultural consultancies had forecast a bumper crop in 2011-12. Mother Nature had different plans. Now Just about every one of them has thrown in the towel. Sugar cane needs sun and some water in the final stage of development. The drop in output is attributed to low sucrose content in the sugarcane and delays in crushing.

According to the Indian Sugar Mills Association the country’s sugar production is expected to fall one million tonnes to 25 million in 2012-13. India’s major growing areas have received inadequate rainfall. This year’s monsoon rains are said to be 30 percent less than is normal at this time. Many of India’s cotton farmers have decided to plant more chickpeas and oilseeds this season. Sugar production is forecast to be 10 percent lower in 2012-2013 in Maharashtra state, the country’s largest sugar producing state.

Sugar has rallied to ten week highs. Everywhere I turn production forecasts for the 2012-13 sugar crops have been lowered. The rainy weather has delayed harvest and shipping. Copersucar, one of the top sugar and ethanol producers in Brazil is taking delivery of 2,216 ICE July sugar contracts. This is the first time a producer has taken delivery in at least 50 years. Copersucar is one producer that will fulfill it’s commitments. This is why we have futures markets!

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, July 6th: At this time the week’s trading range is 22.69-221.03, the last print is 22.13. The stochastic remains in buy mode. RSI at 51.37 is stronger than last week’s indication of 43.64. The M.A.C.D. histogram at 0.05 is higher than last week’s indication of-0.15. Buy on breaks to support and use sound money management. A weekly close of 20.72 or higher in October 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

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