Softs Review for This Week: October 3, 2011

Discussion in 'Commodity Futures' started by pitgurufk, Oct 4, 2011.

  1. The Softs Review
    For the week of October 3, 2011

    By Jurgens H. Bauer

    The more the Soft complex asserts its ability to shrug the frequent crisis management seen in the world economy and focus upon their own individual fundamentals, the better. While most are food stuffs, cocoa and arabica beans (NY) can be viewed as more of a luxury. Cotton and sugar are staples, and OJ... well that is another story altogether, which I do not care to get into at this time. What do I mean that cocoa and arabica beans are luxury items? Well, they aren't critical as say rice, corn, and wheat in regular diets around the world, but rather they are viewed as almost a treat.

    Now I don't know about you, but I will always enjoy my morning cup of coffee. Its an addiction for me. I like quality coffee and prefer a dark french roast with a splash of real cream. I have tried cheaper brands, but it disgusts me to some extent as they are not enjoyable, much less palatable. All this leads me to wonder (since demand for coffee has steadily grown by about 2.4%): are other coffee drinkers of a similar vein? I think many are, at least enough to consider that while quality coffee will be desired, quantity of demand may not rise as steadily. In fact, demand may actually drift downward as quality wins over quantity. Supplies of robusta keep growing, but much of that from farmers in Vietnam. Even Brazil is expected to provide a record robusta crop, so what about Arabica? Right now there are moisture concerns evident, but the latest forecasts call for cold fronts and I don't think the situation is as dire as it is people talking their positions. All that being said for the coming week, am looking for NY to prove that a seasonal low is occurring. But remember, it is hard to turn around when the gravity of the macro markets is dragging you down...

    Sugar genuinely looked as if it was headed down to the lower twenties, then we had the big recovery, a correction rally on Thursday. In the immortal words of Marv Albert, "It was a kick save, and a beauty!" How could you not be encouraged by that price action. Yes, sugar was oversold... show me a market that isn't... And it seems users stepped up to take on positions at a time when the markets were, well, shall we say on semi-holiday? What with the Jewish holidays, you know the old expression, buy Roshashanna, sell Yom Kippur. Well, if you didn't know, you know now. I kind of like the sugar as long as it stays over 25 cents give or take 30 points in SBH.

    Cocoa, looks like it is way oversold and a strong candidate for a bottom to be established. Only one problem, it hasn't. Yet... I think all the bearish news that can come out in cocoa has come out. Not that there is peace, but there has been prolonged stabilization politically in the Ivory Coast. And if I read one more news report of the surplus of cocoa I might just pull my few remaining hairs out. The market does seem as if it is trying to bottom. So, accumulating long positions for any contrarian seems worth a shot. I may sell covered calls, or put back spreads there. Selling at the money calls and buying multiples of out of the money calls on a ratio.

    That leaves cotton. What a dog. Cotton can't get out of its own way. Maybe specs still being long (and unwilling to get shaken out) has something to do with it. Time used to be 94 cents was a high, now it seems like a floor. At least it has acted as if its one. And like cocoa, at least on the demand side of the equation, what more bad demand news can come out? Exports this past week showed marked improvement, but maybe mills aren't interested in chasing prices. They got away with not chasing them on the last couple of run ups, but at a cost of doing business in an above-board manner. Anyway, there is a part of me that looked at Thursday price action and wanted to see it rise above 105 the next day. It didn't, falling instead. Just goes to show you reality of the situation. Outside markets still have a major grip on the softs complex. Sideways expectations between 95 and 105.

    The markets in general seem very laden with a lack of confidence, Therefore, it will be difficult to see any serious rally efforts be successful, unless short covering gets carried away.

    Disclaimer: Past performance is not indicative of future results. Trading futures and options involves substantial risk of loss and is not suitable for all investors. Fundamental factors, seasonal and weather trends, daily news, and other current events may have already been factored into the markets. The use of stop loss or contingent orders may not protect profits and may not limit losses to the amount intended. Certain market conditions make it difficult or impossible to execute such orders.