Lifetime trading range $0.41.50 to $3.37.50 per lb.
Trades on the ICE from 2:30 a.m. to 1:00 p.m. CST
Based on research by the International Coffee Association, world coffee production for 2011-2012 should reach 128.6 million 60 kilo bags. A decrease of 3.4 percent from the 133.1 million bags produced during the 2010-2011 crop year. The decrease was due to adverse weather in several major exporting countries. The dollar value of coffee exports for the 2011 calendar year will reach $23.5 billion. This is an increase of near 41 percent over 2010.
The USDA estimates that Indonesia’s coffee output this marketing year will drop 20 percent to 7.5 million 60 kilo bags. This is due to above normal rainfall which negatively affected development of the coffee cherries and impeded harvesting activity.
Arabica coffee output in Cameroon for the just ended 2010-2011 season was 2,577 metric tonnes, down from the 3,423 tonne output of the previous season. Guatemala’s coffee output will most certainly fall. This seasons harvest was marred by an unusually long lived overcast condition and heavy rain. The weather assisted in spreading a deadly fungal disease over large areas of the country’s coffee growing areas. An official estimate of the damage has yet to be released.
It’s time we gather our thoughts and analyze the present situation as it pertains to coffee. It’s plain as day that demand for coffee is increasing steadily if not alarmingly. If a weather event were to negatively affect coffee output, coffee prices will move higher. Some agronomists have said that a small change in temperature could create an environment that is inhospitable to coffee trees. If climate change raises or lowers temperatures in coffee growing areas coffee prices will move higher. So, though the coffee futures market appears to be in a steep downtrend, the situation is questionable. It won’t take much to turn coffee prices up. But in the mean time the trend remains down.
Sara Lee Corporation has agreed to purchase Dutch coffee café store operator CoffeeCompany. This is the latest deal signed by the consumer products company with the aim of strengthening it’s coffee business. Sara Lee plans to split in two sometime in the first half of 2012. One company will be an International coffee and tea business. The other will be a North American company that will distribute house wares and food products.
Weekly technical indications on Friday, December 16th: At this time the week’s trading range was 227.60-216.55, the last print is 218.00.The stochastic remains in sell mode. This was the first week out of five that the market did not trade above the 9 bar moving average. At 36.05 the RSI is lower than last week’s reading of 4005. The M.A.C.D. histogram reads -2.44 and is lower than last week’s indication of -1.86. Barring unforeseen developments March coffee appears to be on it’s way to 207.00. These technicals are bearish. A weekly close at or above 230.90 in March coffee will turn the weekly trend up.
COCOA
Lifetime trading range: $444 to $5,379 per tonne
Trades on the ICE from 3:00 a.m. to 1:00 p.m. CST
Everyone likes a surprise, right? Cocoa bears got one heck of a surprise Monday morning. And I don’t believe any of them were elated. Cocoa rallied near two hundred points in a very short (no pun intended) time. When I saw that all I could think of was the shorts. What were they thinking at that time? A small trader could be mortally wounded by a move like that. After reaching a few of my sources I found that one of the world’s largest cocoa trading firms had released a very bullish report. Let’s examine the important aspects of that report.
The majority of traders believe the market as balanced at this time. Olam, one of the world’s four largest cocoa traders warned of a cocoa deficit following the 2011-2012 West African harvest. The head of Olam’s cocoa division expects 2011-2012 production to fall near 100,000 tonnes short of grindings. He explained that the deficit could very well widen as exports to date have included the carryover from last season. A dramatic drop in arrivals is expected from January 2012 onwards. Insight from Olam is thoroughly welcomed. This type of information could create a bottom in the market. At this point there is still a plenty of cocoa available. I will be keeping a close eye on this situation. During a long term bear market it doesn’t take much to spook the shorts. When bullish information originates from a large concern like Olam it scares the dickens out of them. It’s unusual to get the story straight from the horse’s mouth. It could very well be true. Would you be surprised if Olam was long cocoa? Good answer, neither would I!
Cocoa farmers in some West African nations have been holding back cocoa from the market awaiting higher prices. Some farmers in southwest Nigeria have large cocoa stocks on hand and have begun to sell their cocoa beans on a small scale. They don’t want to be holding the bag if the bottom falls out. Other farmers continue to hold back supply as well. In fact, thousands of cocoa farmers in Cameroon’s Center Region are refusing to sell cocoa at these price levels. This is an extremely dangerous tact. I fear for their well being. Ghana is locked in an ongoing dispute with shippers and shipping lines over port charges. Needless to say this has halted shipments of cocoa from the world’s second largest producer of cocoa.
Would you believe ten dollars for a chocolate bar? In Asia, western tastes are increasing. Currently the Chinese chocolate lover consumes just 3 grams per year. If they were to increase their chocolate consumption by one bar per year we would have a tremendous shortage of cocoa on our hands. Close to twenty years ago cocoa was trading near $10.00. I said that when the Chinese people taste chocolate cocoa prices will go to twenty cents. Guess I was a bit off the mark. Cocoa reached highs of just over 36.00 in early 2011. In the 1970’s cocoa traded as high as $53.79. Remember, history repeats itself; especially in the world of commodities!
Weekly technical indications for Friday, December 16th: At this time the week’s trading range was 36.10-33.36, the last print is 33.41. The stochastic has flashed a buy signal. This week the market broke below the lower Bollinger band, but gathered strength and rallied back above it. Markets do not hang around the lower Bollinger band for long. RSI at 56.50 is more than double last week’s reading of 24.24. The M.A.C.D. histogram at -61.82 is higher than last week’s reading of -65.88. These technicals are bullish. This week’s whopper of a rally was propelled by a report issued by a third party with an obvious conflict of interest. Keep very close watch on this market. A weekly close at or above 22.39 in March cocoa futures will turn the weekly trend up.
COTTON
Lifetime trading range: $26.84 to $227.00 per lb.
Trades on the ICE from 8:00 p.m. to 1:30 p.m. CST (Next Day)
U.S. cotton exports have been booming. This early surge in U.S. cotton exports can be chalked up to Chinese government purchases. In November alone the China imported 378,200 tonnes of cotton. That equals an increase of 199.6 percent year over year. Year to date China’s cotton imports stand at 2.57 million tonnes, up 8.4 percent on the year. This cotton is being purchased to replenish the country’s depleted reserves.
China has been stockpiling cotton to protect it’s cotton farmers and support local cotton prices. The China National Cotton Reserves Corporation has purchased 1.43 million tonnes of it’s domestic harvest so far. The corporation has the capacity to store 4.1 million tonnes. China expects it’s cotton output to reach near 7.5 million tonnes this season.
Cotton futures fell to 16 month lows this week. Many believe there is no end in sight. March cotton futures could reach major support at 80.00 before this bear market gives up the ghost. Nothing goes down forever, or up for that matter. It’s late in the game to enter short positions in cotton. If you do so watch short term charts for signs the market is turning up. By all means use stops for protection. In fact purchasing enough puts to cover your exposure would be ideal.
World ending stocks are expected to surge near 27 percent this season. There is concern among traders that Europe’s sickly economic situation could spread to other countries and lessen demand for cotton even further. And to top it off – It’s raining in Texas!
Cotton exports for the week ending December 8th, 2011 were 55,800 running bales.
Weekly technical indications for Friday, December 16th: At this time the week’s trading range was 90.45-84.35, the last print is 87.21. The stochastic is close to issuing a buy signal. RSI at 35.03 is lower than last week’s reading of 37.82. The M.A.C.D. histogram at -1.1 is a bit lower than last week’s indication of -0.89. This week the market spiked below the lower Bollinger band then rallied back above it. The technicals are again neutral this week. A weekly close at or below 89.14 in March Cotton will turn the weekly trend down.
SUGAR
Lifetime trading range: 2.30 cents to 66 cents per lb.
Trades on the ICE from 2:30 a.m. to 1:00 p.m. CST
The world’s sugar surplus in 2011-2012 will likely fall 11 percent to 8.2 million tonnes. Previously the estimate stood at 9.2 million tonnes, but increased uptake from Asia is expected to offset increased production. According to the International Sugar Organization, has said that sugar production in the next marketing year may meet global usage. This should aid in relieving concerns regarding oversupply that put a damper on prices this year.
Brazil seems to be in a better position to supply sugar on a short term basis than it had been a year ago. Sugar stocks are at levels close to last year. Russian demand will decline as a result of it’s large sugar beet crop this growing season. According to the national association of sugar producers, Ukrtsukor, Ukraine produced 122.26 million tonnes of sugar from this year’s beet harvest. That’s 48 percent higher than the same time last year. Local Russian sugar prices may rise though. The quality of their sugar beet crop is not up to par. Their sugar content is below what had been expected.
A high ranking Brazilian sugar industry official has said that If Sugar prices fall below 20-22 U.S. cents per pound Brazilian sugar mills would likely increase ethanol production relative to sugar. Ageing cane and poor weather took a toll on the Brazilian sugar crop. Brazilian cane industry group (Unica) reported sugar output in the country’s center south region fell to 500,000 tonnes in the second half of November. The center south provides 90 percent of Brazil’s sugar output. Sugar crushing volume was down near 50 percent on the year.
Raw sugar prices have declined 26 percent this year on reduced demand. However, demand for sugar in India was revised upwards to 34.51 tonnes from 23.9 million tonnes. India has issued permits to export 22,000 tonnes of sugar. These are the first permits issued for the 1 million tonnes of sugar exports approved by the food ministry.
Weekly technical indications for Friday, December 16th: At this time the week’s trading range is 23.89-22.62, the last print is 22.94. The stochastic has flashed a buy signal. RSI at 40.79 is lower than last week’s reading of 42.34. The M.A.C.D. histogram at -0.58 is again basically unchanged from last week’s reading of -0.59. An argument could be made for what appears to be a double bottom using this week’s low of 22.62 and the low of 22.71 the week of November 12th. Major resistance waits above at the 9 bar moving average of 24.17. The technicals are positive. A weekly close at or above 23.91 in March Sugar will turn the weekly trend up.