THE SOFTS REPORT by Robin Rosenberg

June 22, 2012 in Featured Articles, Softs by PFG Best

COFFEE

Forty Year Trading Range: 41.50 cents to $3.37.5 per lb

Trades on the ICE from 2:30 a.m. to 1:00 p.m. CDT

Arabica Coffee futures have declined near 33 percent in 2012. Expectations of a record Brazilian harvest had traders shorting Coffee with reckless abandon. With a majority of the speculators on the short side it was only a matter of time before the market corrected to the upside. In Guatemala business was reported to be rather slow, but demand was picking up. I wrote last week that all surprises will likely be to the upside – surprise!

Costa Rica and Guatemala are concerned about further drops in price and are selling off their Coffee inventories. Uneasiness related to Tropical Storm Carlotta likely pressured a large number of shorts to liquidate their positions. After battering the southern coast of Mexico early this week this storm has weakened. At least three fatalities and an excess of 1,000 injuries are blamed on the storm.

The advance decline indicator or ADX has confirmed the end of the down trend. The macroeconomic picture has taken a turn for the better. Developing economies are drinking more Coffee. Brazil’s crop will be smaller next year as it’s an off year in the countries on / off Coffee growing cycle. There are many reasons to buy on weakness. Coffee is screaming for your attention!

This market is far more oversold than you may think. This brings back recollections of Coffee’s rise to $3.00 plus in April of 2011. The week saw Coffee put in it’s largest weekly trading range since March of this year. An assortment of indicators have been scraping the bottom as well.

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 on Friday, June 22nd: At this time the week’s trading range is 161.50-150.10, the last print is 157.75. The stochastic is in sell mode. RSI at 25.11 is stronger than last week’s indication of 17.72. The M.A.C.D. histogram at -1.42 is a higher than last week’s reading of -1.76. This market has bottomed after breaking more than 50% from it’s highs of 300.15. A weekly close of 154.75 or higher in SeptemberCoffee will turn the weekly trend up. Expect all surprises to be to the upside.

COCOA

Forty Year Trading Range: $4.44 to $53.79 per Tonne

Trades on the ICE from 3:00 a.m. to 1:00 p.m. CDT

Eighteenth century Swedish botanist Carolus Linnaeus re-named the Cocoa tree Theobroma Cacao which is Greek for “Food of the God’s”. It remains the official botanical name to this day.

Chicago based Mars Chocolate intends to purchase close to 90,000 tonnes of certified Cocoa in 2012. The Company’s 2011 Cocoa purchases were certified according to Rainforest Alliance and UTZ Certified standards. At present Mar’s sells six products worldwide that are labeled through the Rainforest Alliance and UTZ Certified. In 2011Mar’s announced plans to partner with Fairtrade International. Visit the sites of these organizations. What they do is well respected and much needed.

Mars has focused on three distinct areas of the Sustainable Cocoa Initiative. Mapping the Cocoa genome in partnership with IBM and the U.S. Department of Agriculture. Transferring advanced technology and agricultural methods to Cocoa farmers aiming to increase productivity. With emphasis on the company’s Vision for Change program whose focus is on the Ivory Coast as well as third party certification. I would very much like to see more of this from other major chocolatiers.

The size and quality of freshly harvested Cocoa beans is not up to par. Farmers are hoping for  better results as the mid crop harvest’s kick into high gear. In some growing areas harvest has not yet begun, but will in short order. If issues with quality and size persist a sizable amount of this year’s mid crop Cocoa will be exported in processed form. Ghanaian Cocoa officials have forecast a 15 percent decline in production compared to last year. This situation is bullish and if  it continues I would expect higher Cocoa prices in the near future.

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 for Friday, June 22nd: At this time the week’s trading range is 22.66-21.24 the last print is 21.30. The stochastic remains in sell mode. RSI at 41.84 is lower than last week’s indication of 46.27. The M.A.C.D. histogram at 4.4 is higher than last week’s indication of -0.19. This market appears to have bottomed. Buy breaks against support. A weekly close of 21.86 or lower in September Cocoa will turn the weekly trend down.

COTTON 

Forty Year Trading Range: 26.84 cents to $2.27.00 per lb.

Trades on the ICE from 8:00 p.m. to 1:30 p.m. CDT (Next Day)

Less Cotton was planted by U.S. Cotton farmers than was expected. According to Informa Research U.S.

October Cotton has put in a reversal to the downside. This is bearish for Cotton prices. Cotton futures have rallied near 30 percent in two weeks. One could make a case that the market has set itself up for a large break. The tail of this rally was attributed to short covering due to news of an order from China for 744,000 running bales of U.S. Cotton. This is a huge order. The exporter handling it faces one heck of a challenge. The Cotton necessary to fulfill the order must be shipped by July 31^st. Rumor has it that a U.S. Cotton merchant is paying a premium over July Cotton futures to fulfill the order.

Bob Rose, chief meteorologist with the Lower Colorado River Authority in Austin, Texas expects El Nino to mature some time later this year. Most likely during the late summer or early fall time frame. El Nino generally provides plenty of rain in the Southwestern U.S.

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 for Friday, June 22nd: At this time the week’s trading range is 75.00-67.00, the last print is 68.61. The stochastic remains in buy mode. RSI at 25.42 is weaker than last week’s indication of 27.25. The M.A.C.D. histogram at -2.48 is lower than last week’s reading of -2.68. I’m bullish Cotton; however this week’s market action has painted a key reversal on the charts. A weekly close of 67.20 or lower in OctoberCotton will turn the weekly trend down. Expect surprises to be to the upside.

SUGAR

Forty Year Trading Range:  2.30 cents to 66.00 cents per lb.

Trades on the ICE from 2:30 a.m. to 1:00 p.m. CDT

Expectations for a large Sugar crop from Brazil this season have been dashed. The heavy rains that fell in May hampered crushing operations at center south region Sugar mills. They have lost near nine days of production thus far. Weather will come and go. It’s not a permanent problem, but old cane stock is an ongoing problem. Until old cane stock is replaced the country will produce less Sugar going forward. This has been a problem for quite some time. Unica has indicated that large areas of land have been cleared and are waiting replanting with cane.

Annual Sugar production in the Center South is usually makes up near 90 percent of the country’s annual Sugar production. Center South mills have produced 3.53m tonnes of sugar in 2012-13. Declining 26% compared to the same time in 2011-12. According to Unica, the Brazilian Sugarcane Industry Association, Sugar cane processing stands at 35.62 tonnes. This is a drop of 17.6 percent compared to the same time last season. Rain remains a risk through June.

Southern Hemisphere Winter officially began June 20^th. The risk of frost this winter is lessened by the development of the El Nino (ENSO) in the equatorial Pacific Ocean. An El Nino can cause weather patterns that cap Sugar production in other world growing areas. India’s monsoon can be much weaker than normal. Drought can cause Sugar production in Malaysia to come to a screeching halt. Southeast Asia generally receives very little moisture during an El Nino event.

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 for Friday, June 22nd: At this time the week’s trading range is 21.14-19.75, the last print is 20.70. The stochastic remains in buy mode. RSI at 39.72 is stronger than last week’s indication of 33.91. The M.A.C.D. histogram at -0.25 is higher than last week’s indication of-0.39. Sugar has bottomed. Expect surprises to be to the upside. A weekly close of 20.01 or lower in October Sugar will turn the weekly trend down.

Do not trade without the use of protective strategies such as stops and or options.

There is a substantial risk of loss in trading futures and options. Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. PFGBEST, its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.

Robin Rosenberg
PFGBEST Research Team
rrosenberg@pfgbest.com