THE SOFTS REPORT by Robin Rosenberg

June 29, 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

Coffee had been in a major bear market for nearly 14 months. It’s become extremely oversold and the technicals are screaming buy. User and producer inventories are reported to be near record lows. While the changing dynamics are positive on their own, the frost season should put a floor under the market.

Standard Charter Bank has added arabica coffee to it’s buy list. Arabica demand had softened due to high prices. The market has fallen a bit more than 50 percent from it’s April 2011 highs. Setting a new contract low in the spot July contract of $1.49.20 per pound. At this price level I expect that dynamic to disappear in short order. Talk is that coffee packagers plan to continue using robusta coffee as filler even though arabica’s price has fallen markedly. I don’t blame them as their profit margins likely suffered when arabica was near it’s highs.

Coffee consumption is inelastic and continues to climb on a global scale, particularly in the emerging markets. A 50 percent retracement would take coffee up to $2.25. If next years off cycle Brazilian crop suffers weather related damage the rally now underway could become more than just a retracement.

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 29th: At this time the week’s trading range is 168.55-154.10, the last print is 165.60. The stochastic has issued new buy signal. RSI at 33.02 is stronger than last week’s indication of 22.38. The M.A.C.D. histogram at -0.5 is markedly higher than last week’s reading of -1.56. This is one strong market. Buy on breaks to support and use sound money management. A weekly close of 150.60 or lower in September Coffee will turn the weekly trend down.

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

The elderly trading range that began in late December of 2011 continues to tread wearily along. Consumption continues to climb. Demand from countries with developing economies will likely fill in for any lack of European and / or U.S. demand.

Dry weather, disease and insect damage have taken a toll on this year’s mid crop cocoa. Cocoa beans sampled from this season’s mid crop are of low quality. Some mid crop harvests have been delayed by heavy rains. Talk is that cocoa beans from this year’s mid crop are small in size. This mid crop harvest will be smaller than was expected. Welcome to the world of climate change.

The short term supply situation is worsening. Odds are we have seen the lows in cocoa. Ivory Coast mid crop is expected to be a bust. Much lower production than had been expected. It will take more beans to make a block of chocolate. Both fundamentals and technicals are bullish.

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 29th: At this time the week’s trading range is 22.59-20.85 the last print is 22.32. The stochastic has issued a new buy signal. RSI at 46.93 is stronger than last week’s indication of 41.21. The M.A.C.D. histogram at 5.32 is higher than last week’s indication of -0.97. Buy on breaks to support and use sound money management. A weekly close of 21.65 or higher in September Cocoa will turn the weekly trend up.

 

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)

Last season, the southwestern U.S. was hit with extreme drought brought on by La Nina. Now La Nina has dissipated and El Nino has taken its place. There should be more than enough moisture this time around for the Southwestern U.S. The major problem facing U.S. cotton farmers this season are insects. The early spring will result in at least one more generation, maybe two more than is normal.

Weeds will also be a challenge.

Insecticides and herbicides cannot just be applied any time a farmer wishes. Both of these products can slow plant development. There is one weed in particular that can wreak havoc in the cotton fields. P-I-G-W-E-E-D This troublesome weed has become very difficult to control. The plant has become herbicide resistant. This mutant can produce stalks of three to four inches in diameter that can cause major damage to expensive farm equipment.

Though cotton prices have retreated near 40 percent the U.S. apparel industry has not bounced back from the high priced cotton of 2011. If only we were able to build consumer and business confidence the economy would improve markedly. Cotton apparel would be in high demand. The main driver behind the U.S. economy is the consumer. Robert Reich, now a professor at the University of California, Berkeley describes the situation perfectly. “It’s because American consumers, whose spending is 70 percent of economic activity, don’t have the dough to buy enough to boost the economy – and they can no longer borrow like they could before the crash of 2008”. Nuff said.

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 29th: At this time the week’s trading range is 70.68-66.10, the last print is 69.80. The stochastic remains in buy mode. RSI at 27.14 is stronger than last week’s indication of 25.95. The M.A.C.D. histogram at -1.98 is higher than last week’s reading of -2.43. Cotton is turning up. Buy on breaks to support and use sound money management. A weekly close of 66.88 or lower in October Cotton will turn the weekly trend down.

 

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

Unica, Brazil’s Sugarcane Industry Association is preparing to revise it’s forecast for the country’s key center south sugar production area. Heavy rains continue to interfere with harvest activity. Sugar production for the first two weeks of June was 1.37 million tonnes. That’s a decrease of 32 percent compared to the same time last season. Nearly every Brazilian growing area has been affected. Unica expects to issue the new forecasts by the end of July.

Many of Brazil’s growing areas have received twice their normal rainfall this growing season. Water at this stage of the game will cause yet to be harvested sugarcane to grow like there’s no tomorrow. That’s not a good thing at this point. The sugar content of the cane will not be anywhere near normal. A larger amount of cane must be crushed to refine a tonne of sugar. This is certainly not positive for the sugar grower’s bottom line. The Macquarie Group has rescinded it’s forecast calling for an increase in Brazil’s sugar production compared to 2010-11.

Sugar is poised for a move to the upside. The second half of the year is strewn with holidays and consumption climbs. Sugar usually moves higher from the beginning of summer through year’s end. Unusually high volume, coupled with higher highs and higher lows indicate the sugar market has bottomed. The fundamentals and technicals are bullish.

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 29th: At this time the week’s trading range is 21.39-19.71, the last print is 20.73. The stochastic remains in buy mode. RSI at 41.35 is stronger than last week’s indication of 33.34. The M.A.C.D. histogram at -0.17 is higher than last week’s indication of-0.3. Buy on breaks to support and use sound money management. A weekly close of 20.72 or higher 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