Commentary | The Hightower Report

Archive | Commentary RSS feed for this section

Interest Rates: June Bonds on Lower Track; Lowest Level Since 10/31/08.

by Dave Hightower on March 14, 2012

Below is a sample of The Hightower Report’s Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!

June bonds are on a sharply lower track during the early morning hours, breaking down to their lowest level since October 31. The overnight breakdown in the US Treasury market comes as Asian markets react to the rally in global equity markets and comments from the Fed acknowledging an improving US economic backdrop. While there has been an improvement in the latest round of US economic readings, confirmation on that point from the Fed was seen as a factor taking a third-round of quantitative easing off the table. The Fed expects moderate growth in coming quarters and a gradual decline in the unemployment rate, while vowing to keep short-term rates at extremely low levels into 2014. With a diminishing chance for more QE and a surge in global equity markets, inflation expectations have ticked up. In fact, breakeven rates on 10-Year TIPS rose to a new seven-month high yesterday of 2.38%. That is up around 70 basis points from the September 2011 low and highlights the rising threat of inflation in the market. Two-Year Note yields also reached their highest level since September 2011 (0.35%). The US Treasury Yield curve steepened, with the 2 vs. 10-Year Note spread widening back out to 179, up 8 basis points yesterday. The price decline in June bonds, down more than 4-00 from last week’s high of 142-10 has coincided with an 18 basis point jump in yields. This should help bolster demand for today’s $13 Billion in 30-Year Bond auction. Yesterday’s 10-Year Note auction was well-received, with a bid to cover ratio 3.241, compared to the 10 auction average of 3.10 and a high-yield of 2.076%. The latest decline in the Treasury market will look to this morning’s scheduled flow of economic data to confirm the improving growth theme. This comes after better than expected US Retail Sales data yesterday that climbed to its best level in five months. The Treasury markets could get a reaction from this morning’s European inflation data, which is expected to come in above their 2.0% target this morning. Fed Chairman Bernanke speaks at a community-bankers convention this morning and could provide a follow-up to the US economic outlook conveyed at yesterday’s FOMC meeting. The scheduled flow of US economic data this morning includes the Mortgage Bankers Association mortgage market index and the latest read on February Import and Export prices for February. The US Q4 current account deficit is expected to come in around $114 billion, which is slightly larger than Q3 levels.

Stocks: Bulls Have a Number of Positives Working In Their Favor

by Dave Hightower on March 14, 2012

Confidence is running high within global equity markets following yesterday’s improved economic assessment from the US Fed and favorable result on US bank stress tests. The Japanese Nikkei finished the overnight trade up 1.5% and registered its first close above the 10,000 level in seven months, helped by an improved US economic outlook and a weaker Japanese Yen. Meanwhile, the Chinese Shanghai composite experienced negative reversal action overnight, with a failed test of recent highs and finishing down more than 2.5%. A sell-off in property-related shares seemed to drag the market lower after a government meeting did not result in further easing in the property sector. European shares rallied to their best level in seven-months, led by a more than 2.0% gain in the financial sector. Risk-sentiment in the US market took on a new level of optimism late yesterday following the FOMC meeting comments and news that 15 of 19 banks passed Federal Reserve stress tests. The stress test results provide the go ahead for US banks to increase their dividend payouts and reflect a considerable turnaround in the US financial sector from the 2008 crisis.

S&P 500: The June S&P 500 climbed to a new contract high overnight and reached its highest level since June of 2008. The index held gains during the FOMC meeting announcement but exploded on reports that JP Morgan was raising its dividend and buying back shares. This carried financial shares as a group by nearly 4.0% on the session. European bank shares were up more than 2.0% during the early morning hours, led by a 4.0% gain in Barclay’s, and that is seen as a positive force this morning. The June S&P 500 is up more than 140 points in 2012, into this morning’s high, and has only had 2 minor corrections: a late-January break of 30 points and the March break of 36 points. While sentiment is running high from the improving trend of US economic data and financial sector recovery, the overbought condition of the market has become more dependent on better than expected data to keep the trend intact. Swing low support stands at 1370.40. The breakout from recent congestion targets 1406.40.

DOW: The June E-mini Dow registered another contract high in overnight action, on follow-through optimism following the FOMC meeting and US bank stress test results. One of the big benefactors in yesterday’s trade was the shares of JP Morgan, which surged more than 7.0% on the session and climbed to a new 10-month high. The company announced plans to increase their dividend and repurchase $15 billion in stock. The surge in the shares of JP Morgan, as well as Bank of America, lifted the Dow Jones cash index to its highest level since December 2007. Yesterday’s upside breakout above a six week congestion zone and follow-through action overnight is a positive technical development, with an upside target of 13,334. Meanwhile, the 8.5% rally in 2012 into yesterday’s high and overbought momentum indicators are a near term concern. Bulls have the edge to start, with swing low support below at 12,967.

NASDAQ: The June NASDAQ registered a higher high in overnight action and has held in the upper end of yesterday’s trading range. The June NASDAQ ended yesterday session with a 1.8% gain and the NASDAQ Composite reached its best level since December 2000. Some of the optimism in the NASDAQ came in response to yesterday’s positive US Retail Sales data that showed its best monthly gain in five months. This bolstered tech-related shares and supports the notion of a healthy US consumer. The NASDAQ was also supported by a more than 2.0% gain in the shares of Apple, following an analyst raising the price target for the company toward $700.00. It is also worth pointing out that option trading activity on the CBOE showed a very active put trade during yesterday’s advance. Recent technical action in the June NASDAQ projects a further push toward 2720.00. The short term uptrend pattern supports the bulls, with support at 2653.50.

TODAY’S MARKET IDEAS: The bulls have a number of positives working in their favor, including an improved economic outlook from the Fed, evidence of a recovering US financial system and a “buy the dip” mentality from portfolio managers’. Complacency has increased further as a result, with the CBOE Volatility Index falling to its lowest level since June 2007. While trading volume on the New York Stock Exchange was about 16% above the 30 day moving average yesterday, the trend throughout the 2012 rally has been a concern. Another potential negative comes as insider sales for S&P 500 companies climbed to their highest level since December 2009. While these negatives suggest that the market is due for a corrective break, the short term trend continues to support the bulls until 12,810 comes out in the June E-mini Dow and 1370.40 for the June S&P 500.

Soybeans: Bullish Setup for New Crop Beans

by Terry Roggensack on March 12, 2012

Below is an excerpt from The Hightower Report’s most recent Newsletter. To receive access to this story, with trade strategies, and our daily coverage of 16 markets, visit futures-research.com for your free 2 week trial!

In the previous issue of this newsletter, we covered the new crop corn situation closely but just brushed over soybeans. In this letter, we will take a closer look at the new crop soybean setup. The soybean complex is in a steep uptrend, with old crop meal closing higher in 9 of the last 10 trading sessions as of this writing. With a sharp drop in production from South America and a jump in demand from China, the soybean market had good reason to rally. The market may also be making one last move to help entice producers to shift some of the intended acreage from corn and wheat back to soybeans. With the South American harvest just picking up steam, some traders expect to see more normal supply levels over the near term. New crop soybeans seem to have more upside potential from here, as the South American supply will tighten considerably in the November to February period for the coming season and there is significant uncertainty on the US supply outlook for the new crop season.

This writing occurred ahead of the March USDA supply/demand update, which is expected to show a drop in both US and world ending stocks for the 2011/12 season. Traders look for ending stocks to come in around 260 million bushels, down from 275 million estimated in February. World ending stocks are expected to drop to 57.75 million tonnes from 60.28 million last month as South American production is adjusted lower. However, some traders are looking for a 4-6 million tonne drop in production for Brazil, Argentina and Paraguay combined, so it may take a drop in demand to pull world ending stocks down by only 3 million tonnes. If we assume that world production will be adjusted lower by 4.5 million tonnes, it would leave world production at 247 million tonnes. This would be down a whopping 17.2 million tonnes from last year and would be the largest annual decline on record. This downward shift in production helps to push some demand into the Northern Hemisphere’s new crop season and increases the need for a high yields.

The USDA Outlook Forum Conference in late February forecasted US plantings at 75 million acres this year, unchanged from last year and down from 77.4 million two years ago. The Conference also assumed a trendline yield of 43.9 bushels/acre, up from 41.5 million last year. Usage is expected to increase 3.335 billion bushels, which would leave ending stocks at just 205 million bushels and the stocks/usage ratio at 6.1% versus 9.1% in 2011/12 and 6.6% in 2010/11. Even if yield reaches a new record high 44.5 bushels per acre, ending stocks would fall to 243 million from 275 million this year. If the yield were up 2 bushels/acre from last year and the same as two years ago, ending stocks would slip to just 149 million bushels and stocks/usage to 4.4%, the lowest on record.

This study shows the need for a high yield for the coming year, and it also helps to explain the surge higher in soybean values over the past month. As a result of the potential tightness, the market is likely to be extremely sensitive to weather developments into the spring. While the market is technically overbought after the recent run higher, the supply/demand outlook is positive. The soybean market may attract more attention from fund traders this year, as it has the story and the trend to draw in new buyers. The Commitments of Traders reports as of February 28th showed that trend following fund traders (non-commercials less index funds) held a net long position of 97,139 contracts. This was up 19,456 contracts from the previous week. The buying trend is a short-term positive force. The record high net long position was 160,198 contracts, so there appears to be significant room for more spec buying to come into the market.

Suggested Trading Strategies: Trading strategies are available to our customers and trial users of our Research Center. Please sign-in or sign-up for your free trial.

Currencies: Rebounding Macro-Econ Sentiment Pressures Dollar

by Dave Hightower on March 8, 2012

DOLLAR: The Dollar continues to slide lower this morning as a rebound in macro-economic sentiment is weighing heavily on prices. Indications that there will be enough participation in the Greek bond swap for the deal to move forward has caused an erosion of safe-haven support, although not enough for the Dollar to tumble back towards last week’s lows. The results of the ECB and Bank of England meetings could also help to soothe market anxiety, although the Dollar’s focus may already be shifting towards tomorrow’s US jobs data. Another new low for the move in Jobless Claims this morning may apply further pressure to the Dollar as well, but there is more than enough uncertainty in the market to keep any Dollar sell off from turning into a full blown meltdown. The Dollar may find support around the 79.30 level early on during today’s session but expect a bumpy ride as the markets will react swiftly to any and all fresh news headlines.

EURO: The March Euro continues to recover from yesterday’s lows as there are signs that the Greek debt swap deal may have enough participation to go forward, although not enough to avoid the use of Collected Action Clauses to force haircuts onto holdout bondholders. There is still enough uncertainty over the level of participation in the Greek debt swap to hold Euro gains in check until a “final” participation level is made known to the market. Today’s European Central Bank meeting may become a secondary factor, as there are few expectations that the ECB will adjust their monetary policy or provide additional liquidity measures to the market. The March Euro may find resistance near the 132.40 level during this morning’s trading but may be waiting for an “all-clear” signal from Greece before making any larger upside move.

YEN: The March Yen has come under pressure during the last few hours but has avoided plunging into new low ground this morning. Another set of weak Japanese economic data was highlighted by a record deficit in their current account during January. There has also been mild pressure from the lost of safe-haven support, although any retest of last week’s lows may not occur until the Greek debt swap results are made official. The March Yen may find support near the 122.75 level this morning but it remains solidly within a longer-term downtrend.

SWISS: The March Swiss was able to lift clear of the recent lows and is finding carryover support from Euro zone optimism this morning. A mild positive reception for the Swiss CPI numbers has also helped to underpin today’s gains but the March Swiss will likely take most of its direction from the ebb and flow of Euro zone sentiment during the session. The March Swiss may find resistance near the 109.85 level this morning and it would get an additional boost from a positive result to the Greek debt swap.

POUND: The March Pound has posted sizable gains today and is also finding support from market optimism towards the Greek debt swap. Today’s Bank of England meeting is not expected to provide fresh changes to policy, which may keep the Pound’s focus on events in the Euro zone. The March Pound may find resistance near the 158.20 level this morning and may be heading back towards last week’s highs if macro-economic sentiment continues to improve.

CANADIAN DOLLAR: The March Canadian continues to gain ground this morning, although the market still has some work to do in order to recover back towards the late February highs. Today’s Canadian housing numbers could provide a further lift to prices this morning but in all likelihood the March Canadian will find most of its support from improving market sentiment. The March Canadian may find resistance near the 100.65 level and should remain well supported throughout the session.

TODAY’S MARKET IDEAS: The Dollar is likely to remain under pressure this morning, although losses may be limited until the market has a clearer picture of the Greek debt swap results. Improving macro-economic sentiment should help the March Canadian Dollar climb back towards last week’s highs for the move.

Stocks: Benefit from a Surge in Risk-Appetites This Morning

by Dave Hightower on March 8, 2012

Global equity markets are on a sharply higher track during the early morning hours, supported by growing optimism that Greece will be able to pull off its debt swap deal. This optimism has lit a fire under risk appetites, which in turn has sparked a rally in equity and commodity markets. The Japanese Nikkei broke a three-day losing streak overnight with a gain of 2.0%, helped by growing participation for today’s Greek debt swap deal, a weaker yen and positive US sentiment. The major European indices were all up more than 1.0% during the early morning hours and that was accomplished ahead of interest rate policy meetings from both the ECB and Bank of England. In addition to optimism surrounding Greece and their ability to secure a second bailout installment (130 billion Euros) and stave off a disorderly default, markets have also embraced ideas that the US Fed may be considering further quantitative easing measures. The prospect of more easy-money sloshing around the capital markets is seen as a rising tide lifting markets this morning. The US labor market comes into focus this morning, with traders looking for clues ahead of tomorrow’s Non-Farm Payroll data from a report on February job cuts and from weekly initial jobless claims.

S&P 500: The March S&P 500 has taken a higher track this morning, as it goes for a challenge of Tuesday’s high (1366.00). Strong upside showings in Asia, as well as 2.0% gains in European bank shares this morning is expected to carry through into the Wall Street open. Reports of a strong take up for today’s Greek debt swap deal from private investors brings the country a step closer to avoiding a nasty default, and that has fueled a risk-on tone this morning. The US Treasury is expected to recoup some of its investment in AIG today, with the sale of $6 billion in shares. Prices are offered at a slight discount, and that has weighed on AIG shares in pre-market trading. The March E-mini S&P 500 has broken out above yesterday’s inside day trading range, and that offers the bulls camp the early edge. The market faces a ceiling of resistance at 1369.50 to 1377.00.

DOW: The March E-mini Dow traded higher throughout the early morning hours and broke out above yesterday’s inside day trading range. It seems that a positive shift in sentiment, from growing participation for today’s Greek debt swap deal, as well as hints from the Federal Reserve over more quantitative easing, has inspired a move back into Dow components after this week’s break. Shares of Boeing were up 1.0% in early German trade, helped by better than expected profits from its rival EADS. The company forecasted a positive demand outlook for Airbus orders in 2012. The early morning action in the March E-mini Dow favors the bull camp for a further push toward 12,985.

NASDAQ: The March NASDAQ has fully recovered from Tuesday’s slide and stands about 20 points away from contract highs at 2650.00. The index has a couple of positives working in its favor, including fresh buzz surrounding Apple’s new iPad release and an early risk on vibe in outside markets. It appears that the new iPad has garnered excitement from the tech crowd, with the market now looking for confirmation from investors. A number of Asian companies within the Apple supply chain saw strong gains overnight, and that could support shares this morning. The index is also expected to get the latest earnings from Altera, which has warned of softening semiconductor demand for some of its products. Strong overnight gains in the March NASDAQ leave 2650.00 as the next upside stopping point.

TODAY’S MARKET IDEAS: Equity markets benefit from a surge in risk-appetites this morning, fueled by expectations for a favorable result with Greece’s debt swap, indications that the Fed is considering further quantitative easing measures and buzz surrounding Apple’s new iPad. The early drive higher could face a boost in volatility ahead of this morning’s economic calendar, Greek swap deadline this evening and tomorrow’s Non-Farm Payroll report. We would expect the March E-mini Dow and S&P 500 to continue to move higher for a re-test of near-term resistance at 12,985 and 1367.00. Failure to confirm a move above these levels would keep the down trend pattern in tact. Aggressive bears might consider selling strength into resistance, risking a move into new contract highs of 13,042 in the Dow and 1377.00 in the S&P 500. Downside targeting for the March E-mini Dow comes in at 12,600 and 1320.00 for the March S&P 500.

Cotton: India off the Export Market and the Industry Needs to Replace That Supply

by Terry Roggensack on March 6, 2012

It is difficult to predict how much support and how much follow-through buying there may be from the decision by India to exit the export market. The market closed up the 4 cent limit yesterday and the exchange has already raised margin requirements. Once the importers has relocated exportable surplus cotton in the world, the impact will die down. May cotton has already seen as much as a 7.3% correction off of last week’s lows. Traders see a surge in world ending stocks to up to 60% of the world consumption for the 2012/13 season and the market was in the process of “pricing in” this large surplus. The surprise India announcement sparked aggressive short-covering and some new commercial buying but it may take more positive supply or demand news to shift the market to a positive trend. Weather in the US and China will be key factors this season as planted area is already on the decline. China is expected to see a drop of near 8-10% in planted area and US planted area is also down but US yield is also expected to be more normal which could result in higher production. India’s farm minister is already requesting that the export ban be lifted indicating he had been left in the dark on the situation. Australia and the US are likely to see a jump in short-term export activity and then the focus is likely to shift to the new crop supply/demand situation. It seems that India overcommitted exports for this year and the actions were taken to make sure they had enough cotton for their own textile industry. The COT reports as of February 28th showed Non-Commercial traders were net long 8,329 contracts, a decrease of 7,905 contracts for the week. The report also showed that trend-following fund traders (non-commercial with no index funds) had shifted to a net short position of 5,254 contracts so there is likely to be some short-covering ahead. Certified cotton stocks deliverable against the New York contract fell to 110,809 bales from 142,095 bales the previous session.

TODAY’S GUIDANCE: The longer-term price outlook is uncertain but in the short run, the industry will need to replace the India flow of cotton north into China and this may be difficult. Short-covering and new buying is likely to emerge if the market attempts to set-back today with a bearish tone to outside market forces.

TODAY’S MARKET IDEAS: May cotton resistance comes in at 95.06 with support at 92.28. Look for bounce to near 97.00 for now.

Sugar: Look for More Selling Pressure Short-Term.

by Terry Roggensack on March 6, 2012

Bearish outside market forces plus talk of the short-term overbought condition of the market looks to weigh on sugar prices over the near-term. May sugar closed moderately lower on the session yesterday and saw the lowest close since February 21st. India sugar officials see production for the 2011/12 season rising to above 26 million tonnes as compared with 24.3 million last year. India consumption is thought to be near 21.5-22.00 million tonnes. India’s Farm Minister indicated that the country can export another 1 million tonnes of sugar this season on top of the 2 million tonnes already approved. This could help to keep a negative supply tilt on the outlook as India, Brazil and Thailand all seem to have exportable surplus sugar. In addition, macro economic news of a slower growth outlook for China was seen as a negative force yesterday and weakness in equity markets plus a strong US dollar this morning looks to help to pressure. Indonesia issues an import permit to one firm for 240,000 tonnes of raw sugar as the country planned on the imports to make up for a white sugar shortage for the year. In other words, issuing the permit is not new news. Australia is expected to see higher exports this season with a better crop and exports are expected to reach 3 million tonnes.

TODAY’S GUIDANCE: The COT reports as of February 28th showed Non-Commercial and Nonreportable combined traders held a net long position of 192,413 contracts, up a whopping 65,332 contracts in just one week. This leaves the market technically overbought and with bearish outside market forces and the lack of a strong fundamental story, the market looks vulnerable to short-term, long liquidation selling pressures. The technical action for May sugar turned more negative with the move under key support at 24.45 and this level will now act as key resistance. The market looks vulnerable to further selling pressures with 24.03 and 23.61 as next key support levels.

TODAY’S MARKET IDEAS: Look for more selling pressure short-term.

Hogs: Tech Rally Impressive

by Terry Roggensack on March 2, 2012

Near-term cash fundamentals still look sloppy and packer margins are in the red. Weights continue to move sideways over the past six weeks during a period when weights normally drop. This could be a function of mild winter weather but may also be associated with the slower movement of pork through the pipeline. “Hopes” that pork demand will receive a boost over the near-term seems to be the primary reason for the rally to the higher end of the recent trading range. April hogs moved from sharply lower on the session to close sharply higher on the day yesterday. Ideas that the surge in cattle and gasoline prices at the same time might support better demand for US pork helped to spark the aggressive buying late in the day. A jump in cattle and a more positive tilt coming from economic news helped to support. The market pushed lower early as weakness in pork cut-out values late Wednesday plus weakness in ham values helped to pressure. Weakness in packer margins has been a negative force so the further weakness in pork values helped spark selling. Traders were looking for cash to trade $.50-$1.00 higher Thursday but cash came in mostly lower, and this added to the negative tone. The CME Lean Hog Index as of February 28th came in at 87.63, down 33 cents from the previous session but up from 87.23 the week before. The estimated hog slaughter came in at 421,000 head yesterday. This brings the total for the week so far to 1.686 million head, up from 1.640 million last week at this time and up from 1.680 million a year ago. Pork cutout values, released after the close yesterday, came in at $84.86, down 3 cents from Wednesday and down from $85.56 the previous, week and this pushed cut-out to the lowest level since February 9th. Actual US pork production for the week ending February 18th came in at 448.4 million pounds, up from 440.3 the previous week and up 0.22% from a year ago.

TODAY’S GUIDANCE: The technical rally is impressive and the short-term cash fundamental news is sloppy. Strong exports to China could be one of the factors which would support a strong run higher into the spring, but this should show up as increases in pork values which remain choppy. Technical support for April hogs comes in at 89.72 and 89.35, with 90.97 and 92.22 as next resistance.

TODAY’S MARKET IDEAS: June support is at 98.75, with 101.57 as next technical target.

Cattle: If Outside Forces Not Too Negative, Fund Buyers Might Remain Active

by Terry Roggensack on March 2, 2012

A combination of mild weather and sluggish marketings, due to weak packer profit margins, has helped to hold average weights and production a little higher than expected. Meanwhile, news that weights fell slightly for the second week in a row and an uptick in daily slaughter pace could be seen as positive forces. However, even with sluggish cash market fundamentals, the market has managed a solid uptrend over the past 2 1/2 months. Fund trader and speculative buying has been active with open interest up nearly 65,000 contracts since mid-December. April cattle closed sharply higher on the session yesterday as fund buyers emerged late in the session finding support from a surge higher in equity, energy and metal markets. The market saw choppy trade early in the session trading both sides of unchanged but pushed to moderately higher on the day into the mid-session. With April cattle moving to the nearby contract, traders talked about a new all-time high trade for nearby futures but even after the jump yesterday, April is still more than 50 points shy of the February 22nd contract high. Outside market forces turned positive after a negative start and this, along with a bounce in grains helped to support. Talk that cash cattle might move higher this week helped to support as well. Weekly U.S. beef export sales for the week ending February 23rd came in at 18,340 metric tonnes, compared with the prior 4-week average of 29,027. Cumulative sales for 2012 have reached 291,620 metric tonnes, up 2.7% from last year’s pace. The estimated cattle slaughter came in at 125,000 head yesterday, which was higher than expected and considered somewhat positive. This brings the total for the week so far to 490,000 head, up from 472,000 last week at this time but down from 512,000 a year ago. Boxed beef cutout values were down 19 cents at mid-session yesterday and closed 35 cents lower at $198.45. This was up from $196.86 the prior week. Average dressed steer weights for the week ending February 18th came in at 854 pounds, down from 855 the previous week but still up from 835 last year. Beef production for the same week came in at 480.1 million pounds, down 3.34% over year ago.

TODAY’S GUIDANCE: As long as outside market forces are not negative enough to spark fund traders long liquidation, the uptrend is impressive and fund buyers might remain active. Cash markets look to trade higher into the second quarter but short-term cash trade is a bit uncertain. Traders see the possibility that packers pay up for cash cattle this week after some trade on Tuesday, but this is also uncertain. June cattle support moves up to 126.97 and 126.37, with 128.92 and 130.42 as next upside targets.

TODAY’S MARKET IDEAS: The upside seems limited for April cattle until packer margins improve or until there is a better feel for “if” US consumers will resist the surge in beef prices or accept. June seems to have more upside potential than April but bear spreading might be too risky. Continue to look to buy corrective breaks.

Cocoa Special Report: World Production Deficit Ahead!

by Terry Roggensack on February 28, 2012

Below is an excerpt from The Hightower Report’s most recent Special Report. To receive access to this report, with trade strategies, and our daily coverage of 16 markets, visit futures-research.com for your free 2 week trial!

The cocoa market saw some extreme price movement during 2011, first reaching multi-decade highs in March and then losing nearly half of its value by year’s end. The main catalyst for the price volatility was the political situation in the Ivory Coast, where a civil war triggered by a disputed Presidential election resulted in an export ban for cocoa and other key commodities. Once opposition forces were able to gain control of the Ivory Coast, the resulting build-up of cocoa supplies was able to once again reach markets in Europe and North America. In addition, the 2011/12 season resulted in all-time record high cocoa crops for several major West African producers. Ivory Coast cocoa port arrivals were over 1.5 million tonnes, while official cocoa purchases in Ghana reached the 1 million tonne level for the first time ever. This resulting supply “glut” was matched by sluggish global demand levels late in the year and kept prices under considerable pressure. A turning point may have been reached early in 2012 that may provide cocoa prices with an opportunity to post solid gains during the next few months.

The Ivory Coast remains the focal point of the cocoa market, and it may be that this season’s crop will provide the cornerstone for an extended rally. Excessively dry conditions over the past few months, due in large part to a severe edition of the “Harmattan” winds, has caused a severe decline in recently harvested cocoa levels. The full impact of these negative crop conditions may not be fully seen until the upcoming mid-crop is harvested later on this year. As of mid- February, this season’s Ivory Coast cocoa port arrivals were running around 80,000 tonnes behind last season’s pace, and they are likely to lose further ground as the season goes on. Many analysts are cutting back on their forecasts for the Ivory Coast this season, as the crop could see a much larger decline than the 10% that the International Cocoa Organization (ICCO) is currently projecting.

To gain access to the full report, with trade strategies, please sign-in or sign-up for your free trial.

← Older posts

Newer posts →

Free Trial

The Hightower Report