December 2000
The story of the three bears
Ample supplies and lackadaisical demand don't project a happy ending to the tale of the softs markets for either bears or bulls.
futuresmag.com
By Darrell Jobman
Once upon a time there were three bears: Coffee, cocoa and sugar.
Coffee was just too hot for most traders when it did decide to move. After sinking to its lowest point since 1993 in early July, coffee suddenly spiked up 10¢ a pound or more for several days in July on reports of potential frost damage to the crop in Brazil. Then the gains evaporated just as quickly as prices skidded to even lower levels below 75¢ a pound. With each cent worth $375, daily moves of $5,000 or $6,000 per contract and an initial margin of more than $4,000 per contract, only the most venturesome risk-taker can trade this thin, volatile market.
Cocoa was just too cold for most traders' taste. After falling to lows in the $800 to $850 per metric ton area in the early 1990s, cocoa prices doubled before staging another collapse in 1998-99. Nearby cocoa futures dropped to historic lows below $750 earlier this year and then settled into a sideways range where even reaching the former lows around $850 has been a struggle. It has been a difficult market for position traders to trade.
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Other than a weather problem, the other potential bullish consideration is the export retention proposal from the Association of Coffee Producing Countries (ACPC). The plan to withhold coffee from the market ran into a credibility problem soon after it was suggested, however. Indonesia, India, Vietnam and other producers indicated a willingness to participate but said they did not have the funding to pay for the storage as each waited for the others to take the lead. Unless political talk turns confusion into real action, traders are skeptical that the ACPC plan will have much of an impact on the market. Nearby coffee futures could be pressed to 65¢ to 70¢, Stevenson concludes.
Cocoa The most prominent feature in the cocoa market has been the political and economic situation in Ivory Coast, which produces more than 40% of the world's cocoa. The presidential election in October, the overthrow of the declared election winner Gen. Robert Guei and the assumption of power by opposition leader Laurent Gbagbo could have sparked a strong reaction in the cocoa market. |
