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. CST
As of now the Greek debt situation seems to be under control, but that’s a story in and of itself. Brazil’s Carnival has come to an end and activity in the country’s Coffee industry is picking up. Brazilian Coffee production is expected to be huge. We will have to wait it out to get the complete picture. European Coffee stocks were down near 6 percent in December. Can we take this to mean European demand is increasing? Perhaps, but the jury is still out. There is not much in the way of fresh Coffee news this week so please bear with me.
According to the Ethiopian Coffee Exporters’ Association, the country’s Coffee exports are expected to rise near 7 percent this year. Ethiopia is the largest exporter of arabica Coffee in Africa. Exports are expected to be 150,000 tonnes to July 7th. Shipments in the first half of the marketing year were down 35,000 tonnes from last year due to an extended rainy season. Sales of Ethiopian Coffee contribute near one-third of the country’s foreign currency income.
What is the natural home of the arabica Coffee tree? Ethiopia is. The tree can still be found in the wild growing in highland forests. Ethiopia also leads the African continent in domestic consumption. Near 12 million Ethiopians earn their livelihood working in the country’s Coffee industry.
The name Coffee is said to be a derivation of “Kaffa”. And Kaffa is the name of an Ethiopian province. It is said that more than 1,000 years ago a goat herder in Kaffa noticed his goats acting more energetic than normal after eating some red berries, He picked a few from the young trees and ate them himself. He enjoyed the flavor and the uplifting effect that came on a bit later. Today finds those same berries being used to create the world’s second favorite non alcoholic beverage. Tea is number one.
Weekly technical indications on Friday, February 24th: At this time the week’s trading range was 206.75-200.40, the last print is 203.80. The stochastic remains in sell mode. RSI at 32.63 is higher than last week’s indication of 31.46. The M.A.C.D. histogram reads -1.88 and is lower than last week’s indication of -1.35. The market traded on both sides of the lower Bollinger band this week. A weekly close at or above 203.10 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. CST
Olam International C.E.O. Sonny Verghese expects a 100,000+ tonne supply deficit following the 2011-2012 crop year. Olam is one of world’s largest food processors and traders.
Dry conditions in the Ivory Coast means recently harvested Cocoa beans will be small and lacking in quality. According to a Nigerian Cocoa body official, midcrop Cocoa in Nigeria’s southeastern Cross River state has been blessed with normal heavy precipitation. This will help in the development of the 2011-2012 mid crop. If all goes as planned mid crop Cocoa will be harvested from April through August.
A report issued by Goldman Sachs anticipates that West African Cocoa output will be decent in 2011-2012, but production will be lower than had been expected. In order to calculate this, an analysis of arrivals at ports for export is required. If those numbers are skewed for one reason or another the report would be of no use. Goldman Sachs has access to reliable sources of information. The investment bank continues to expect Cocoa’s price to be $24.50 a tonne for three to twelve months in the future.
The recent strength in Cocoa’s price was due to better than anticipated economic growth and strong Harmattan winds that threatened to negatively affect output. My take on this is the rally was corrective in nature.
Over the long term Ivory Coast production remains key. The aging of the country’s orchards and poor condition of it’s infrastructure need to be addressed – NOW! These facts along with the country’s ongoing political instability have not allowed the country’s Cocoa production efforts to reach full capacity.
Weekly technical indications for Friday, February 24th: At this time the week’s trading range was 24.67-23.07 the last print is 23.68. The stochastic remains in buy mode. RSI at 46.02 is higher than last week’s reading of 45.16. The M.A.C.D. histogram at 51.76 is higher than last week’s indication of 44.47. A weekly close at or below 21.86 in May cocoa will turn the weekly trend down. The technicals are improving, but the market is not. It appears that Cocoa’s price action will remain a range trading affair. May Cocoa topped out at 36.09 and broke to 20.05. Bulls do not want May Cocoa to trade below 20.05.
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. CST (Next Day)
This marketing year U.S. Cotton exports reached 101 percent of the USDA’s projection; the majority exported to China. It appears that China’s Cotton shopping spree is nearing an end. China’s Cotton imports for January were 326,444 tonnes. That’s a 16 percent decrease from a year ago. Slowing U.S. Cotton exports are a major concern.
Last year Cotton prices reached post Civil War highs in early April. Exactly the time of year farmers decide what crops they will be planting. With Cotton making new highs day after day how could they help themselves? I can just hear what they were thinking. We’ll plant Cotton, lots and lots of Cotton; and that’s just what they did.
High Cotton prices also decrease demand. The Cotton industry is faced with a perfect storm. In a nutshell U.S. Cotton producers are between a rock and a hard place. Private crop estimates released last week call for global ending stocks to Global carryover stocks are expected to increase to 8.9 million bales in 2012-2013. The Cotton market appears to have all the necessary ingredients to move lower. However, government weather forecasters are looking for the drought to continue and possibly intensify in the top two Cotton producing states of Texas and Georgia. If so, production numbers will likely take a hit.
Many buyers continue to back away from their contractual obligations with U.S. Cotton merchants (have not paid their bills). What to do? What to do? I will keep you informed of any further developments. U.S. Cotton exports for the week ending 2/9/2012 were 101,400 running bales. Up noticeably from the previous week and four week average.
Cotton output from southern hemisphere growing areas is pressuring the price of Cotton.
Weekly technical indications for Friday, February 24th: At this time the week’s trading range was 93.79-89.01, the last print is 89.36. The stochastic remains in sell mode. RSI at 41.38 is lower than last week’s indication of 45.17. The M.A.C.D. histogram at 0.36 is lower than last week’s reading of 0.86. The market was able to pierce the center Bollinger band above, but again was unable to hold and has now pierced the 9 bar average below. A weekly close at or above 93.51 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. CST
The International Sugar Association has increased it’s estimate for the Global Sugar surplus following the 2011-2012 growing season. An increase to 5.17 million tonnes is expected. The prior estimate stood at 4.46 million tonnes. That is one large increase! 2011-2012 World Sugar production is expected to reach a record 173 million tonnes. That’s up 4.9 percent from the previous season. Consumption is expected to increase 2.3 percent to 167.83 million tonnes.
A cut in Brazil’s output has limited the amount of Sugar the country has available for export. The EU, India, Pakistan and Ukraine are expecting significant increases in output. These increases will more than make up for the Brazilian deficit.
Vietnam intends to export 100,000 to 150,000 tonnes of Sugar this year. Although 100,000 tonnes lower than the Viet Nam Sugarcane Association’s recommendation this will aid in offsetting surplus domestic supply and allow Sugar refineries to recoup investment capital quickly. Refiner’s had been selling Sugar at a loss. This growing season the country’s Sugar crop is expected to reach 1.57 million tonnes. Demand will be in the vicinity of 1.4 million tonnes.
If the ever present illegal importation of Sugar from nearby producers is allowed to continue Vietnam’s Sugar surplus could be much higher. Vietnam’s Sugar refiners produce much less Sugar than local demand requires. The country has produced more Sugar each year for three years running. Many of it’s sugar mills have huge surplus’ of sugar at this time.
Weekly technical indications for Friday, February 24th: At this time the week’s trading range is 25.04-23.81, the last print is 24.99. The stochastic remains in buy mode. RSI at 56.13 is higher than last week’s reading of 48.97. The M.A.C.D. histogram at 0.21 is higher than last week’s reading of 0.11. The market is finishing out the week between the center and upper Bollinger bands. Continue to treat dips as buying opportunities. A weekly close at or above 24.57 in May Sugar will turn the weekly trend up. I see upside potential in this market.