The Softs Pit Review
For the week of October 19th, 2009
By PitGuru Jurgens H. Bauer
Outside markets acted supportive in assisting the soft complex higher this past week. Will that continue? There is a lot of talk circulating that re-allocation of assets among ETFs will be in full force this week and soft markets are expected to be a focus. At week's end the CRB is at a high for the year and the US dollar was still under pressure. Both have been a key resulting in the flow of money into commodities. Unless outside markets receive news that will halt the dollar's decline and stimulate a bout of short covering it looks like a strong fourth quarter is developing for commodities and in the soft complex. One concern might be that the relative strength of individual markets in the complex is running high.
Coffee acted strangely backing off on efforts to move above 139 basis KCZ for much of the week, but after Monday's trip down that held 134 it never did get back below 136.30. On Friday prices took off blasting through 139 and then 140 and 141, and eventually challenging 143 just prior to the option close - a classic case of the old axiom to "never sell a quiet market short". Now KCZ is in position to reach the objective of 149.50. Funny thing is prices could open 200 points either way and still get there. Most interesting on Friday, which saw the biggest volume in futures in quite a while (over 30,000 futures changed hands) option volume was light, with less than 4,000 options in total changing hands. The weekly breakout was accompanied by strong volume and this market is strong. It’s doubtful that failure is ahead; rather, look for higher values.
Cotton had a powerful move up last week in which specs will likely end up net long over 20%. Open interest has grown, along with trading volume leading one to believe that there is more to go here on the upside. Clearing the 65-cent hurdle was key and momentum is obviously in favor of longs. The trade is short in a big way and one cannot help but wonder if they have saved bullets. Of course those sales are offsetting long physical positions, but should mills decide to acquire fresh longs and merchants need to buy, who's going to sell?
Then there is crop. Rain in the Mid-South and parts of the Southeast have served to damage the quality and reduce yields - and with a late crop (will the weather in Texas hold?), NY futures gather increasing focus. Already this is one of the smallest crops in two decades, so the amount of potential tenderable grades is another threat. Sources among the trade remain confident that they will be able to thwart the spec longs by possibly delivering a sizeable amount of certified stock to the board. The certified stock has grown again and is approaching 375,000 bales. The futures market is paying a better price than any mill at the moment, and yet if mills get nervous and seek coverage CTZ will bust a move. Logic suggests pressure should materialize, but history shows that cotton doesn't stay in the 70 handle so a move is likely. Subscribers should expect a recommendation early this week.
OJ finished correcting after the breakout a week ago from the crop numbers. Cocoa prices moved higher again adding over 100 points on the week. Grinding numbers were issued with some revisions. I remain a skeptic of the demand side for cocoa, and as such remain without a position although I am considering opportunities from the short side. My lack of confidence prevents commitment.
Sugar prices surged for much of the week, pausing Friday as they received some profit taking. Volatility remains high, but why not with ranges of 100 points or more most days... Rains in Brazil are expected and a move over 25 cents may result. Keep an eye on Indian developments as global deficits continue.3
3http://www.bloomberg.com/apps/news?pid=20601086&sid=aygStSLX.Lrk
Past performance is not necessarily indicative of future results.
