The Softs Pit Review

For the week of October 12th, 2009

By PitGuru Jurgens H. Bauer

For the most part weakness in the dollar and improving stock markets benefited commodity prices during much of the past week. At week's end dollar strength applied "corrective" pressure, yet stocks remained firm. While positive price action may draw attention and promote commodities as an asset, there is also reason to expect a shifting of resources among markets as noted by the recent news regarding re-allocation among ETFs. I think this is a feature one shall see more of in the universe of commodities and expect to see more such shifting to be accomplished this coming week among the soft markets.

Re-allocating positions may help explain the severity for the sharp decline in sugar. Sugar prices took a dramatic turn downward, losing almost 300 points from Wednesday to Friday when SBH fell 130. Some analysts are calling this a correction... certainly prices had been over bought and the failure last week when sugar was challenging a 28-year high fits into that scenario. The failure up there, of course, could result in a correction but 300 points seems a bit much. You know as weak as sugar might appear, they can get that thing up 150 points quick, especially as they coax specs to the short side.  I don't suggest jumping in front of a moving train, nor diving to catch a falling knife - but Sugar prices should find support in SBH at 2110.

I really believe that coffee is preparing to make a nice push up. What I've noticed about trading in coffee is that it often will shake the trees before making such a move. Friday's price action shook the tree. KCZ may dip a little further, so any move below 133 may threaten nervous longs and chase them out. However, a move down below 133 basis KCZ might also prove to be a comfortable entry level for fresh longs, willing to risk a close below 131, or a drop below 130. Nothing goes straight up.

Cotton prices have failed three times when presented with 6500. It may happen again, but it may instead push through and gain spec buying from short covering. The crop numbers were favorable, but of course didn't take into consideration the damage to the SE crop from all the wet weather. China ought to be a key, so I lean to the upside not feeling comfortable getting short as I expect more crop news to assist moving prices higher.

I cannot explain the crazy goings on in the Cocoa market except to say the volatility seems the direct result of uncertainty and electronic trading.  I expect big swings to continue and think buying options is the only way to go. Have no strong opinion, but do not believe demand will be as good as anticipated. Hearing grinding revisions are possible.

OJ received a bullish crop report and that was all it took to rally the market limit on Friday. Limit today will be 20 cents. I think there is more room for OJ on the upside.

***chart courtesy Gecko Software’s Track n’ Trade Pro

Past performance is not necessarily indicative of future results.