NOTICE! Temporary Changes to Opening Times Instituted for Sugar, Coffee and Cocoa Contracts and Settlement Time for Cocoa, March 15 – 26. Please visit the ICE website for further information.
The Soft Spot
“Houston we have a problem!” On the weekly chart, the Commodity Channel Index (Old CRB) has moved below the center band of the Bollinger study (475.68) and the 9 bar moving average (474.87). Major support rests below at 471.87, the 50% level of the 2008-9 de-leveraging break. A move below this 50% level would be an ominous sign for commodity bulls.
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 03/12/2010
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.
