The Softs Review
For the week of December 6th, 2010
Here is the analysis of what we should note for soft investment this week by Pitguru Jurgens H. Bauer.
It is becoming more and more obvious that I can no longer look at the cotton market (or any of the Soft markets for that matter) in the same way I used to. I feel that the way things are going all it takes is two consecutive days in one direction to signal that the tide has changed and when it changes the tsunami begins and the tide overwhelms. I believe that we are in the midst of a huge shift in the financial world, which stems from the ongoing breakdown of traditional currencies. The dollar still gets used as a safe haven during times of economic uncertainty and fear, but that confidence is being challenged. Currencies have been used to determine value but new problems are arising destroying those traditional relationships. In other words the full impact of the Fed's QE2 move has yet to be felt in my opinion.
The value of commodities in relation to one another is another method of pricing. Pricing cotton in terms of other commodities like gold, silver, copper, crude oil or even soybeans, wheat and corn, and you get a whole different perspective on things. Yes, cotton prices are at record highs, but not as much so when compared to relative value in terms of relationship with other commodities. The soft complex may have been simply been playing catch up with them. In other words, while cotton prices have more or less doubled, the market has also seen "silver go up four-fold, gold three-fold, copper and crude oil more than two-fold, and corn, soybeans and wheat double in price." I suspect this trend will continue as more money makes its way into commodities.
What to expect this week? I expect cocoa to continue to and try to advance, especially as long as tensions in Ivory Coast remain, as that situation prevents the normal flow of cocoa exports. But even independent of that Cocoa seems undervalued when compared to other softs like sugar. Cotton crop report will likely make the market nervous, but I expect the strong physical market to continue to show up in export demand. The bigger news may soon start to focus on shipping all those exports. Logistics are starting to have a play as can we ship the quantities in timely fashion? Either way the key will be the cash market. Importers are scrambling to lock up remaining supplies before they run out altogether, which is underpinning prices.
All this makes me nervous about being short, but I opened this column with "two consecutive days in one direction to signal that the tide has changed."
Related futures market reviews will be useful all the time: pitguru.com |
