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Coffee: Bearish Supply Outlook Overcomes Improving Macroeconomic Sentiment

by Terry Roggensack on September 30, 2011

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The coffee market has been in a tailspin during the latter part of this week, and prices have now completely given back the entire late August rally. December coffee kept sliding lower during yesterday, with prices reaching their lowest levels since late January. The market failed to find carryover support from a broad-based commodity rally, and a late rebound in the Dollar added to the negative tone. Forecasts for rain showers over Brazilian growing areas were a major factor in coffee’s plunge, as they should bring about the start of the critical flowering period and reinforce market ideas that Brazil’s upcoming coffee crop will match or exceed expectations. The start of the coffee harvest in Vietnam early next month should help to ease that nation’s tight near-term stocks situation. Trade officials in Colombia are still confident their nation will reach a production target of 9 million bags during 2011, in spite of poor weather earlier in the year. ICE exchange coffee stocks were up 1,004 bags to 1.432 million as of September 29th, with no bags pending review.

TODAY’S GUIDANCE: While the market is extremely oversold, the move under the September 23rd lows late yesterday left 224.80 as the next downside target. The bearish supply outlook for the coffee market has clearly overcome recently improving macroeconomic sentiment. The market could consolidate recent gains before it resumes its downtrend.

TODAY’S MARKET IDEAS: Initial resistance for December coffee comes in at 236.80 and 238.65. The steady to higher trend in open interest on the recent downtrend suggests that some fund traders are building up a hefty net short position, so we cannot rule out some increased volatility in both directions just ahead.

Sugar: Bigger Crops in Europe, India and Thailand Should Increase Export Competition

by Terry Roggensack on September 16, 2011

Outside market forces look a bit more negative for sugar today with a strong US dollar and weakness in energy and equity markets, and we would think that the market may be poised for a resumption of the recent downtrend. Tightness in the cash market due to lower Brazilian production has supported the futures in recent months, but traders see the need to absorb a large northern hemisphere crop as a negative force. Bigger crops in Europe, India and Thailand should increase the competition for the export market, and Russia’s import needs look to be much smaller. March sugar closed slightly higher on the session yesterday after choppy and two-sided trade. The market saw some weakness into the mid-day, led by a sell-off in the October contracts in New York and London. Traders see deliveries of nearly 100,000 tonnes for London October futures. Strength in the stock market and a positive tilt to the energy markets helped to pull the market off of the mid-session lows, and March sugar’s close matched its highest since September 2nd. The discount of March to October may have helped support the March contract in recent days. Traders will monitor the flooding in Thailand to see if there is an impact on the cane crop. India mills have secured permits to export 213,250 tonnes of sugar out of the 500,000 tonnes that the government allowed last month. Russia produced 615,500 tonnes of refined sugar from beets through September 12th, compared with 352,800 tonnes by the same date last year. Russia may be in a position to produce 5.3 million tonnes this season, up from 2.7 million last year, and this will likely limit their import needs.

TODAY’S GUIDANCE: The recent ten day consolidation appears to be a continuation pattern and we would expect the market to break-out to the downside soon. March sugar resistance is at 28.18 and 28.50, with 26.46 and 25.85 as next support levels.

Cotton: Weak Technical Action Leaves Market Vulnerable

by Terry Roggensack on September 16, 2011

The weak technical action yesterday has left the cotton market vulnerable to increased speculative long liquidation selling today. Yesterday’s outside day down is seen as a negative technical development. Large and small speculators combined still held a net long position of 47,436 contracts as of September 6th. More cancellations in the weekly export sales report and weakness in the grain markets were seen as forces that drove the market sharply lower yesterday. Weekly export sales for cotton came in showing cancellations of 171,300 running bales for the current marketing year and net sales of 36,600 for the next marketing year for a total net cancellation of 134,700 bales. China was noted as canceling 200,000 bales. Cumulative cotton sales stand at 56.7% of the USDA forecast for 2011/12 (current) marketing year versus a 5 year average of 33.6%. Sales of 102,000 running bales are needed each week to reach the USDA forecast. Chinese futures were down 0.7% overnight, and the US market could attract more end-of-week selling today. A big crop in India will likely cause increased competition for exports this year, and the larger crop in China is expected to help limit the import demand. The market is technically overbought after the recent strong gains.

TODAY’S GUIDANCE: Selling resistance for December cotton comes in at 112.72 and 114.30, with 106.96 and 104.33 as initial support.

Coffee: Look for Choppy Trade Caused by Volatile Outside Markets

by Terry Roggensack on September 7, 2011

The longer term rally in the coffee market took a nasty setback at the start of this week, with prices dropping well below last Thursday’s highs for the move. December coffee came under heavy pressure yesterday and finished the day sharply lower, although a late rebound took prices well above the early lows. A negative tone for commodity markets due to elevated global risk concerns was the initial source of weakness. A big rally in the Dollar was also seen as a negative factor for coffee prices. Reports that coffee exports from Vietnam this month could be more than 20% above the August levels put additional pressure on prices. Early estimates are calling for Brazil to export anywhere from 30 to 31 million bags during the course of the 2011-12 crop season. ICE exchange coffee stocks were down 4,860 bags to 1.463 million as of September 6th, with 8,658 bags pending review.

TODAY’S GUIDANCE: Improving economic sentiment along with a weaker Dollar should help to keep coffee prices well supported this morning. Recent estimates for upcoming Brazilian production will be difficult to overcome, but a retest of last week’s highs is possible if commodities see a broad-based rebound later in the session.

TODAY’S MARKET IDEAS: Tuesday’s sharp pullback may have relieved some of coffee’s overbought condition, although there may be some choppy trading ahead given the volatility of outside markets. Support looks to be coming in around the 281.50 level this morning, but a pullback to 278.00 would be a stronger opportunity for entering the long side of the market.

Cocoa: Heavy Near-Term Supply Makes It Tough for Bulls

by Terry Roggensack on September 7, 2011

The cocoa market made a decisive move away from the recent highs yesterday, although outside market factors appeared to be the main catalyst for this slide in prices. December cocoa plunged far below the recent trading range, ending the session with heavy losses and with its lowest closing price since mid-August. Broad-based pressure on commodity markets due to an erosion of global economic sentiment may have been the primary cause for cocoa’s extensive weakness. In addition, a massive selloff in the British Pound down to 11/2 month lows was seen as a major negative factor for cocoa, as that encouraged arbitrage selling of ICE cocoa against the LIFFE contract. Rainfall over Ivory Coast production areas that broke a recent dry spell and will likely benefit the upcoming cocoa crop also had a negative impact on prices. With only a few weeks left before this season’s crop year ends, cocoa port arrivals in the Ivory Coast remain more than 23% above last season’s levels. A director for a major European chocolate producer forecast that cocoa supplies would to stay plentiful through the end of this year.

TODAY’S GUIDANCE: While December cocoa made a mild rebound from early lows overnight, prices remain close to the lower end of this week’s severe pullback. Broad-based sentiment for commodities may be improving, but heavy near-term supplies may be difficult to overcome.

TODAY’S MARKET IDEAS: Tuesday’s swift turnaround may be more reflective of cocoa’s near-term fundamentals, but traders looking to enter the short side are still advised to look at out-of-the-money December puts until a downtrend can be sustained over several sessions.

Cotton: Negative Outside Forces and Market Consolidation

by Terry Roggensack on August 30, 2011

The cotton market inched higher in quiet trade yesterday. Outside market forces were quite strong, but the market does not appear to be overly influenced by them at the present time. A more positive tilt for many commodity markets has been seen in recent days, with active buying by fund traders, but this does not appear to be the case for cotton. A surge higher in soybeans and the stock market didn’t provide much support either. Traders still see a smaller US crop than what was reported in last USDA report, but they also see struggling demand and a lack of interest in US cotton. Export sales started out on a strong pace this year, but the have been weakened by major cancellations in recent weeks. Indian textile industry officials believe their 2011/12 cotton crop could come in near 35.5 million bales, which would be a record high. Last year’s production totaled 32.5 million bales. India is expected to be a major exporter of at least 7 million bales this season. The surge in production stems from strong prices of the past year. The weekly Crop Progress report showed that 30% of the cotton crop was rated good/excellent as of Sunday, compared to 31% last week and 60% last year. The 10 year average for this time of year is 54%. This is still the worst-rated crop on record. The previous low was 34% in 1998. The Texas crop improved slightly to 14% good/excellent, up 1% from last week, while Georgia’s conditions fell 7% to just 26% good to excellent versus a 10-year average of 51%. The North Carolina crop is rated 44% good to excellent with 25% bolls opening. In South Carolina the report showed 29% bolls open as of Sunday. This may minimize the impact of heavy rains from the weekend storms, especially if we see sunny weather ahead.

TODAY’S GUIDANCE: The outside market forces are slightly negative today. December cotton will need a close above 106.22 in order for us to expect some further upside action. For now, the market is in a consolidation. Ideas of a poor US crop ahead of the September production update may help provide some underlying support.

TODAY’S MARKET IDEAS: December cotton support is at 102.97 and 101.10, with resistance at 106.22. A close through resistance would leaves 111.77 as an upside target.

Sugar: Facing World Production Surplus and Charts Signaling Top

by Dave Hightower on August 30, 2011

The technical action for sugar is weak, and the market is still under the negative technical influence of the key reversal from August 24th. The reversal was confirmed with a weekly closing price reversal from a contract high and lower close last week. A very positive influence from outside market forces failed to support the market yesterday, despite fears of increased demand from China ahead. As of October 1st Brazil will to cut the blend of ethanol in gasoline to 20% from the current 25% due to the disappointing cane harvest. This may allow more of the cane crop to be crushed for sugar. Thailand is considering cutting the portion of their production to be set aside for domestic consumption by 100,000 tonnes, which will allow for more exports. Thailand’s production hit a record high 9.6 million tonnes last year, which was a significant jump from the “normal” levels of 7.0-7.5 million of recent years, Traders see the
possibility of a record 10 million tonnes in production this year. With a lack of domestic tightness, setting aside 2.5 million for domestic consumption will leave at least 7.5 million tonnes for export, which would be far and away a new record high. March sugar closed slightly lower on the session yesterday with an inside trading session. With a weaker US dollar and a surge in the stock market, bulls were disappointed with the close. While there is more and more talk that China will be an aggressive importer in the year ahead, traders also see a world production surplus. The weekend COT report showed a large spec net long position, but the buying trend from fund traders was seen as a short-term positive force. The Ukrainian beet harvest is underway, and traders see white sugar production near 2.2 million tonnes, compared with 1.55 million last year.

TODAY’S GUIDANCE: While the Chinese demand is an appealing story, the market still faces a significant world production surplus for the coming season, and the charts are signaling that a major top may be in place.

TODAY’S MARKET IDEAS: March sugar resistance is at 29.25 and 29.57, with 27.37 and 26.46 as next key support levels. A resumption of the downtrend would leave 25.85 (50% of May to August rally) as next key target.

Coffee: Unable to Build on Yesterday’s Sharp Rally

by Terry Roggensack on August 12, 2011

The coffee market finally showed some strength during yesterday’s session, although prices have a long way to go to recover from last week’s plunge. September coffee was able to make a strong move to the upside, ending the session with sizable gains while moving further away from the recent lows. A broad-based rebound in commodity markets due in large part to global equities making a recovery provided the main source of strength for coffee prices during the session. Reports of tight coffee stocks in Vietnam and Indonesia remain a key positive factor for coffee prices, as scarce supplies have led to an increasing number of export defaults. Officials in Honduras are projecting their nation to export 4.6 million bags of coffee during the 2011/12 season, a record amount that will make Honduras the largest coffee exporter in Central America. Coffee producers in Colombia expect to reach their earlier forecast of 9 million bags this season in spite of heavy rains earlier this year. Cooler weather over Brazilian coffee production areas has raised the prospect of freezing temperatures during the next few days. ICE exchange coffee stocks were down 2,820 bags at 1.496 million for August 11th, with 2,520 bags pending review.

TODAY’S GUIDANCE: September coffee has been unable to build on Thursday’s sharp rally so far this morning, but broad-based strength in other commodity markets and a weaker Dollar may help to lift prices back towards last week’s highs. The performance of global equity markets today could play a larger role than coffee’s own supply/demand setup.

TODAY’S MARKET IDEAS: September coffee could retest resistance around the 243.50 level this morning, and a move through that area could lead to prices moving well clear of last week’s lows for the move. If macroeconomic sentiment turns negative, coffee prices could see a retest of the lows.

Cocoa: Mild Rebound; Will Need Support From Outside Markets to Extend

by Terry Roggensack on August 12, 2011

The cocoa market has made a mild rebound from new lows for the move, but it will need support from outside markets to offset weak fundamentals. December cocoa was able to recover from posting a new 8-month low early yesterday and finished the session with moderate gains. However, prices remain below the trading range from earlier in the week. A recovery in the British Pound helped to improve sentiment for the cocoa market by encouraging arbitrage buying of ICE
cocoa against the LIFFE contract. A broad-based improvement in commodity sentiment as global equity markets made a recovery lent support later in the session. There were reports that cash cocoa prices in the Ivory Coast rose last week, due in large part to buyers stockpiling in front of the holiday season. In a news interview, the executive director of the International Cocoa Organization said that the 2010/11 season’s global cocoa surplus would be 325,000 tonnes, an increase of more 100,000 tonnes from their previous estimate last month. A large portion of that increase came from projections of record cocoa crops this season for the Ivory Coast and Ghana.

TODAY’S GUIDANCE: December cocoa has been able to extend yesterday’s rebound, due in large part to a stronger British Pound this morning. A key factor will come when the market retests the 2915 level later on today, an area which provided support for the market during the late spring and summer.

TODAY’S MARKET IDEAS: The market saw a higher close after a making new low yesterday, and this may attract some technical buying short-term, with 29020 and 2943 as resistance.

Cotton: US Crop Conditions Worst On Record; Demand In Question Though

by Terry Roggensack on August 10, 2011

The charts have the appearance of a double bottom going into the key USDA production and supply/demand reports on Thursday morning. The cotton market closed sharply lower yesterday, following economic sensitive markets lower early in the day and then failing to follow the US stock market higher. Overnight, the market did recover all of the losses from yesterday, as it appeared to benefit from the late-day surge in the US stock market. Demand fears persist, as traders see US cotton having a tough time competing with India for the coming year. India has seen a large jump in planted area. Last month’s USDA world supply/demand report was especially negative, showing a significant drop in demand and rising ending stocks. The weekly Crop Progress Report this week showed a record low 30% of the US cotton crop rated good/excellent compared with 65% last year. Texas was rated just 12% good to excellent. While non-irrigated land will not be harvested, yields on irrigated land are expected to be small. For the US crop, production was revised down by 1 million bales last month to 16 million, and we would not be surprised to see a crop near 14.5-15.00 million this month. The USDA also revised exports down by 1 million last month to 12 million, and this could also come down this month by 300,000-500,000. As a result, US ending stocks could slip to 2.25-2.50 million bales from 3.0 million last month. Until there are signs of better demand, the market may struggle to find much traction on poor crop conditions in the US. India and China production numbers will be monitored closely. The most recent COT report showed that large and small specs combined still hold a net long position of 48,602 contracts as of last Tuesday, which left the market vulnerable to liquidation selling.

TODAY’S GUIDANCE: Chinese cotton futures were up nearly 1% overnight, and outside market forces look positive for commodity markets today, with a weak dollar and higher grain prices. December cotton failed to hold support this week and looks vulnerable to beginning another leg lower. Selling resistance today is at 99.41 and 101.17, with 87.30 as next downside target.

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