The Softs Review
For the week of January 10th, 2011
We just go back the soft market to see how sugar, coffee, cocoa and others working in the coming week. As usual, just have a look at this market with Pitguru Jurgens H. Bauer!
The first week of 2011 turned out to be lower for most of the softs and volatile. Sugar led the way, with cotton not far behind as both moved about in very large ranges. Coffee (KCH down about 800) and cocoa (CCH down about 200 pts) came under pressure from a strong dollar, while orange juice prices moved up as fear of cold weather. I was glad to have had my hands in my pocket for the most part, although I continue to hold onto a couple of long call spreads trades that are underwater in sugar and cocoa. I will continue to hold onto them.
This coming week expect more of the same type of volatility and anticipate a hands in pockets approach as I wait allowing for further portfolio restructuring. However, I remain a long term bull on the softs and expect to see signs of the dollar's inability to continue to strengthen. Yes, the health of foreign economies is a more immediate concern for investors, and that's likely a reason for the dollar strength. Also, with China's hike in rates seen as an effort to stem the tide of commodity prices, there maybe be a glitch in my bullishness for the time being, but long term my outlook is for inflation and higher prices. I look for the softs to respond this next week with efforts to carve out significant support levels.
Coffee is apt to see KCH take a trip below 230, with 225-223 the first level of solid support. If that occurs then I want to seek to establish more aggressive longs, looking for a new high over 242.5. Cocoa had a down week, but I remain long a July call spread. My desire to be long cocoa hasn't changed, and I may consider adding to that long, or covering the short leg of the call spread. Sugar, I remain a bull. This past week it came close to actually closing up on the week after a couple of large moves. Expect the large moves to be the norm in sugar. With low export numbers probably stemming from so little cotton left to trade in the US cash market, the NY futures market could become quite thinly traded as we move ahead. Therefore, watch for a push upward before sellers become aggressive enough to further to sell. It may take elevated prices to entice potential sellers and get longs to take profits.
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