COFFEE
Forty Year Trading Range: $41.50 to $337.50 per lb
Trades on the ICE from 2:30 a.m. to 1:00 p.m. CDT
Now is not the time I’d be scanning this market for selling opportunities. May Coffee has retraced near 75 percent of it’s rally from 137.30 to 315.25; 75 percent is 67.97. Sure, there will be selling opportunities, but by all means use stops. I would not like to awaken one morning and find out Coffee opened eight dollars higher at 2.00 AM CDT!
A Coffee industry executive was visiting a missionary friend in the heart of the Amazon rain forest. He entered a banana leaf tent and was greeted by a tribesman covered in red body paint. The tribesman asked if he would like a cup of Coffee. This was a surprising offer from a member of a rain forest tribe. Coffee had never been a traditional drink. If a tribesman whose possessions are a hammock and a pan for cooking has a thermos for his Coffee there is no doubt that Coffee consumption will continue to grow.
I’m sure you can tell where I’m going with this. Coffee growers of the world had better get their acts together. There is a sea change taking place. It’s quiet and below the radar. Coffee prices have but one direction to move over the long haul and that’s higher - much higher.
Recent estimates for Brazil’s Coffee crop range from 52 to 54 million bags. This is higher than government forecasts but on the low end of Brazilian Coffee industry expectations. The operator of Sao Paulo based Coffee roaster Cafes Bom Retiro Ltda. expects Brazil to become the world’s largest consumer of the bean in two to three years.
Global Coffee production in 2012-2013 is expected to climb to record levels. Belfast based CoffeeNetwork expects global Coffee production to reach 146 million bags. That’s 8.1 percent above the estimated 135 million bags expected in 2011-2012.
Weekly technical indications on Friday, March 16th: My thoughts that an important low may have been struck last week was wrong. At this time the week’s trading range is 186.50-181.05, the last print is 185.90. The stochastic is in sell mode and below 25. RSI at 26.16 is lower than last week’s indication of 26.25. The M.A.C.D. histogram reads -3.83 and is lower than last week’s indication of -3.35. A weekly close at or above 186.50 in May coffee will turn the weekly trend up.
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 market has found underlying support at this level. This year Ivory Coast mid crop Cocoa production is expected to be 140,000 tonnes less than last year. Recent favorable weather has brightened prospects for the Ivory Coast’s mid crop. However, the unusually hot weather over the preceding few months has stressed the Cocoa trees. This will no doubt negatively affect the quality and quantity of the country’s mid crop.
In late January I wrote that capsid bugs were threatening Cocoa output in Cameroon. It has taken until now to distribute the necessary chemicals and insecticides. Cocoa farmers have begun to apply the insecticide that will eradicate the pests. A Capsid bug pierces the plants outer skin and sinks it’s long proboscis deep inside to get at the sap. Hundreds, perhaps thousands of Cameroonian Cocoa trees have been killed by these vampires of the plant world. In excess of 2000 trees were killed by dry weather and capsid bugs last season.
Unlike the sob stories of other West African growers, Ghana’s Cocoa crop will rival last year’s one million tonne production. This is due to good weather and improved farming techniques. Ghana, the world’s second largest producer of Cocoa was the first West African nation to establish a sustainability program for it’s Cocoa industry. We are now witnessing results. Now here is the kicker. Cocoa farmers in both Ivory Coast and Ghana have said that tonnes of beans are being smuggled to Ghana this season due to the higher prices paid for Cocoa in Ghana. One has to wonder how much of Ghana’s Cocoa is contraband.
Weekly technical indications for Friday, March 16th: At this time the week’s trading range is 24.26-21.69 the last print is 22.10. The stochastic remains in buy mode. RSI at 41.33 is lower than last week’s reading of 47.91. The M.A.C.D. histogram at 42.53 is lower than last week’s indication of 55.01. The market is trading between the center and lower Bollinger bands. A weekly close at or below 23.52 in May cocoa will turn the weekly trend down.
COTTON
Forty Year Trading Range: $26.84 to $227.00 per lb.
Trades on the ICE from 8:00 p.m. to 1:30 p.m. CDT (Next Day)
India’s government has partially rolled back restrictions on Cotton exports. This latest twist in this never ending saga allows for Cotton exports under open general license. No new registration certificates will be issued. Registration certificates issued prior to the ban must be revalidated before actual exportation takes place.
According to one high profile Cotton industry executive the impact of the government’s decision on the industry is going to be very bad. The decision to ban exports was based on fundamental reasons and it has been partially lifted for emotional and political reasons”. Another said, “We must realize that we are a Cotton surplus country and our surplus needs to be exported. The government justified the export ban by saying that India needs to protect Cotton supplies for it’s own Cotton mills.
The ban on Cotton exports is flawed and short sighted. China called it irresponsible. What good can come from holding back Cotton when there is a large surplus? If the shoe were on the other foot I’m certain there would be much moaning and groaning. Buyers are by no means tripping over each other to purchase Cotton.
The USDA reports that U.S. exports stand at 104.5 percent this marketing year. The five year average at this time of year stands is 81.5 percent. It’s not that business is good overall. China imported the majority to fill state reserves. World ending stocks for 2011-2012 now stand at 62.32 million bales. That’s up from 60.77 in February. U.S. Cotton exports for the week ending March 8th, 2012 for the 2011-2012 marketing year were 239,900 running bales. Up noticeably from the previous week and the prior four week average.
Weekly technical indications for Friday, March 16th: At this time the week’s trading range is 89.16-87.01, the last print is 87.56. The stochastic remains in sell mode. RSI at 39.54 is lower than last week’s indication of 41.03. The M.A.C.D. histogram at -0.51 is lower than last week’s reading of -0.28. A weekly close at or above 88.69 in May Cotton will turn the weekly trend up.
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
Having just begun, talk is the Brazilian harvest is going well. Now we will begin to see just how badly Brazil’s Sugar cane was affected by the weather. So, harvest has just begun and the shorts are swinging for the fences. This seems to happen at the start of every harvest. Just keep this in mind; it’s not over until it’s over.
Commercial interests are likely jawboning the market lower so they can buy. All I’ve heard for weeks is how terrible Brazil’s Sugar production will be. If that’s the case, breaks to support should be viewed as buying opportunities. Remember how excited everyone was when it was reported in early January that funds were buying large amounts of Sugar contracts. Commercial interests pay out a ton of money to analysts for private forecasts. Some actually visit the growing areas themselves. Those are strong hands and they won’t budge unless there is a reason.
The latest CFTC commitments of traders report showed non-commercial traders covered 10,137 long contracts. That brought the total to 149,010 long contracts. If weakness continues there will be more unwinding of long positions. Often times it’s healthy for a market to lose some open interest. When the market finally decides to make a move the majority of traders have no positions. So what does that mean? As they all pile in they move the market further and faster. They add fuel to the already burning fire.
Examine a weekly May Sugar chart. Use candlesticks if you are able. Notice that there are many spikes to the low end of the bars, but the market closes out the week on the high side of the bar. Spikes to the downside indicate that buying is coming in when the market moves lower. Conversely, spikes to the upside would indicate the opposite. As long as 22.43 holds the trend remains up.
Weekly technical indications for Friday, March 16th: At this time the week’s trading range is 25.68-23.23, the last print is 25.50. The stochastic remains in buy mode. RSI at 56.87 is higher than last week’s reading of 47.68. The M.A.C.D. histogram at 0.27 is minutely higher than last week’s reading of 0.20. The weekly high was made on Monday, the low on Friday. The market put in a key reversal to the upside this week! A weekly close at or above 25.04 in May Sugar will turn the weekly trend up.