The Softs Pit Review
For the week of November 9th, 2009
By PitGuru Jurgens H. Bauer
Other than FCOJ, the components of the soft market complex ended last week under pressure with most of those markets going out on their lows for the week - Cocoa prices dropped 100 points, Sugar futures lost value after being higher the first half of the week. Cotton, which has been trapped in a tight sideways range between 66 and 69, settled at 66.54. Coffee, which actually added 3 cents for the week, certainly didn't feel very positive from its negative move on Friday when KCZ settled down almost 400 points. The negativity seemed to occur even while stock prices advanced, which did seem out of the ordinary. Look for these markets to stage a recovery, or expect to see some disappointed long liquidation in the coming week, depending upon what the dollar does. If the dollar resumes its down trend with vigor (and it looks to be doing precisely that this morning) then soft markets should perform well. So far that is the reaction I am seeing, yet I'm disappointed that prices aren't staging stronger moves up given the extreme weakness in the dollar... Makes me skeptical.
The focus in cotton futures has been upon the rolling of positions from December into March and that spread has widened in response likely continuing to stretch. That spread settled at 378 on Friday. It makes sense to look for a move above 400, perhaps to 440, and maybe even 500. On Tuesday the USDA will issue the monthly supply-demand report, and Friday the December options will expire. Improved weather will spur harvesting of the damaged, late crop.
Cocoa values stayed close to 3200 as options expired on Friday. Fundamental information is sketchy and for now unreliable, so this market is trading technically. Disappointment may bring pressure. Spread action bullish, but CCZ needs to get back above 3270 in order to negate a bearish look.
I still favor the long side of the sugar market from a fundamental stand point. According to Bloomberg, India will be a net importer of sugar for a third year next crop season as the world’s biggest consumer seeks to build inventory: http://www.bloomberg.com/apps/news?pid=20601091&sid=aLOdoVp71eBg Technically, sugar prices need a lift to thwart what many consider key support. SBH ought to hold 2150, yet this morning's tone isn't reacting as friendly as one might expect - so maybe that means we'll see that level tested.
Coffee prices have been shifting wildly. Much focus had been for 150 to be seen and KCZ may eventually get there, but I cannot rule out 134 to 133 coming first. The past week cost a positive technical appearance and this market is defensive. London may serve to drag NY down.
OJ prices held up well while the balance of the soft complex drifted lower. However, there is nothing to get excited about. I did read where consumption is on the increase as folks fear the swine flu4, and a late season hurricane (which enjoys no direct threat) reminds us that the season for such storms is not over.
4 http://online.wsj.com/article/SB125710391103321377.html
***chart courtesy Gecko Software
Past performance is not necessarily indicative of future results.
