Ths week we have seen markets very much focused on the approaching harvests. Both Coffee and Cocoa are exhibiting weakness on expectations of huge crops. Cotton and Sugar are holding their ground. Cotton’s strength is due to strong export demand; Sugar’s, based on the probability of a smaller harvest than had been expected. Commodity markets in general are again keenly focused on the financial situation. Most U.S. financial reports have been negative to extremely negative of late. Let’s take a closer look at the softs.
Coffee 08/27/2010
Life Time Trading Range 41.50 Cents - $337.50 per Pound
Trades on The ICE 2:30 AM – 1 PM CDT
Another Friday and another sharp move to the upside for Coffee. Even though this market exhibits strength, the whipsaw like action ha me wondering if this is classic topping activity. There is a good chance that a major top is in the making. The market ran out of buyers early this week as it swiftly retraced the gains made over the last few weeks. This market has most certainly entered a defensive posture. If anything, small spec longs and shorts are reeling from the negative effects this very large whipsaw of a move had on their trading accounts.
The expected new supply of Coffee following this seasons harvest has been applying pressure to Coffee prices of late. Production is expected to be higher in most all of the Coffee growing areas this harvest. A bumper crop is anticipated from Brazil. One Coffee growing area of Colombia is expecting a thirty percent increase in production. This will assist in boosting Colombia’s total Coffee output. Despite exportation of large quantities of Coffee in July, Vietnamese carryover stocks are expected to be higher than last year at this time. Vietnam is also expected to stockpile close to half of this seasons production; near one half million tonnes. This is intended to stabilize prices for the benefit of Vietnamese Coffee producers. We are about to be buried in supply, the market should react by moving lower. We shall soon find out!
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: Major damage has been done to the technical structure of the Coffee market. Last week’s run for the roses was followed by a wicked reversal to the down side followed by a run back to the upside. Not a market for the faint of heart! The stochastic remains in buy mode. The R.S.I. stands at 69.66, and lower than last week’s reading of 71.40. The M.A.C.D. histogram stands at 2.35, lower than last week’s reading of 2.7. I prefer to stand aside when markets are trendless and this is one of them. Conserve your trading capital
Do not trade without the use of protective strategies such as stops and or options.
Cocoa 08/27/2010
Life Time Trading Range $444 – $5379 per Tonne
Trades on The ICE 3 AM – 1 PM
Cocoa prices are down over seven dollars from the December highs of 3510. Below the one hundred bar weekly average of 2804, and appears to be headed lower. The macro economic situation is weighing on the market once again as reports continue to indicate a deteriorating economic recovery. Technically speaking, Cocoa, though not yet in the throes of a fully fledged bear market, is on the brink of becoming one. Cocoa’s oversold condition could bring a corrective bounce, but soft economic conditions, the overall strength of the U.S. Dollar and concern of increased supply from the coming main crop are keeping a lid on Cocoa’s price.
Recent rains in Ivory Coast growing areas were perfectly timed for the development of the Ivorian Cocoa crop. Presently, the Ivory Coast harvest is projected to be a bountiful one. However, Cocoa requires hot, dry, sunny weather in the final stages of it’s development. Who would have guessed that the exact opposite would be forecast for the next few weeks. Cool, wet weather is expected. This could very well bring on an outbreak of dreaded Black Pod disease, causing severe damage to the crop. The main harvest is due to get under way in September. I will keep close watch over this situation.
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: This week Cocoa continued to gain downside momentum. The down flag formation on the weekly bar chart could take the market as low as 2400 before any meaningful support moves in. The R.S.I. stands at a bearish 40.78 and lower than last week’s indication of 43.87. The M.A.C.D. histogram stands at -28.55, much lower than last week’s indication of -0.23. We are seeing a capitulation from bull to bear market.
Do not trade without the use of protective strategies such as stops and or options.
Cotton 08/27/2010
Life Time Trading Range $26.84 – $117.20 per Pound
Trades on The ICE 8 PM – 1:30 PM CDT (Next Day)
The Cotton market is holding up very well in an environment of overwhelmingly negative economic news. My take on this is that the majority of the U.S. crop is either hedged or pre-sold. And do not forget Cotton’s status as a leading economic indicator. I’ll tell you this; never before in the thirty four years I’ve been a futures industry professional have I heard or seen such a large amount of negativity regarding the state of the economy. I’m a contrarian by nature and this negativity along with the strength in Cotton at this time leads me to believe the economic situation may very well be bottoming out. This situation reminds me of an old maxim: “When you have to look up to see down you know you’re at the bottom”.
Net Cotton exports for the week ending August 19th 2010 totaled 472,600 running bales. Weekly exports of 163,600 running bales are necessary to meet the USDA’s export forecast for the marketing year that began August 1st. The trade had expected exports to be somewhat lower than last week’s 447,400; wrong again! Flood damage to Pakistan’s Cotton crop will be more than offset by India’s Cotton production. Expectations are for a large Indian Cotton crop this year. This will result in increased export activity. Below normal temperatures are forecast for Texas, the Deep South and Mississippi Delta growing areas for the next few days. This year’s Cotton crop certainly deserves a rest from the stress of developing during an unusually hot summer.
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: Cotton made new highs for the move this week. The stochastic remains in buy mode. One thing to be wary of is the sustained move above the top band of the Bollinger study. Generally markets do not spend much time in that rarified atmosphere. The R.S.I. stands at a bullish 64.31, higher than last week’s indication of 60.21. The M.A.C.D. histogram is improved at .86, higher than last week’s reading of.52. This market is in need of some backing and filling activity.
Do not trade without the use of protective strategies such as stops and or options.
Sugar 08/27/2010
Life Time Trading Range 2.30 Cents – 66.00 Cents per Pound
Trades on The ICE 2:30 AM – 1 PM CDT
The Sugar market remains firm, and continues to move higher. The market has reached price levels not seen since March. Due to dry weather over the past few months there is concern that the Brazilian harvest will not be as large as expected. Drought conditions in Russian growing areas have stunted the growth of the Russian Sugar beet crop. Resulting tests indicate that Sugar beet root weight is below normal. There is also much concern regarding the Pakistani Sugar crop due to flooding.
Earlier this growing season the Russian sugar beet crop had been estimated to be close to four million tonnes. It now appears that the crop will come in much closer to three million tonnes. According to Iskander Khan, the Chairman of the Pakistan Sugar Mills Association, there have been reports suggesting that Sugar cane crops in Charsadda, DI Khan and some parts of Southern Punjab have been damaged. The Sugar crop of Pakistan had been expected to be 4 million tonnes. Flooding has seen that figure lowered to 3.8 million tonnes. Until the full extent of flood damage to Pakistan’s Sugar crop is known this number is meaningless.
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: Sugar rallied to a new high this week, but it does not look to be very inspired. After undershooting the top band of the Bollinger study by .02 the market backed off, and moved lower. The stochastic has flashed a buy signal. R.S.I. stands at 54.02, lower than last week’s reading of 56.97. The M.A.C.D. histogram stands at +.79, lower than last week’s read of +.87. Sugar, although on the high side of it’s corrective rally appears lethargic at best. I see no clear cut trading opportunities in Sugar at this time.
Do not trade without the use of protective strategies such as stops and or options.
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