Softs Review for The Week of August 16th, 2010
You are going to view the softs review for this week. Let's see what our expert - PitGuru Jurgens H. Bauer - would like us to pay attention to!
"This past week the USDA increased beginning US cotton stocks slightly by reducing past exports. World production showed an increase (to 116.85 million bales), but even with global production 14.7 million bales higher than last year, usage is projected at 120.87 million bales. That usage is greater than production helps explain the tightness in the market and in turn the higher prices. The result is the lowest stocks-to-use ratio since 1994-95 with ending stocks projected to be 45.6 million bales. So fundamentally, it certainly looks like prices should remain firm. If only it was that easy.
The influence of specs and funds on this market have made the move up stronger and what they do will dictate. I suggest that since the market is bullish and has attracted speculators to the long side, it doesn't appear as if that situation will change any time soon. How high will prices go? For now, I set my sights on 90 cents being in play, but I also do not rule out seeing $1.00. The downside seems limited, so I would suggest traders seeking to participate ought to look for option call spreads and outright calls as buys and puts as potential sales. Buying dips and being patient.
Coffee options expired on Friday and left things more in limbo than had they blasted off. In fact, many may interpret price action a little negative here. I still favor the long side of this market longer term, (while I am not confident in owning longs at this level, instead I am preferring to await a dip), but, as with cotton and cocoa, it is the funds and the flow of money that will determine the next big move. The next important event will be the deliveries of the Sept contract.
I like what I see in sugar, but as seen last week it is capable of making large moves. Fundamentals seem to be improving with potential supply side troubles developing in Pakistan and Russia. Technically, the market did some important work in testing support this past week. It now looks strong. While I like the long side, options expire today, Monday, so I think a trip to a strike price like 19, or maybe 19.50 cents may be brewing. Otherwise, I suspect 20 cents plus this week, and maybe back to 24 down the road.
I cannot see any reason to want to own cocoa. Now that prices have dropped below 2900 basis CCU and look headed lower I think the key ought to be 2800-2750. I believe owning puts may prove worthwhile." |
