The Softs Review
For the week of January 24th, 2011
By Jurgens H. Bauer
Any discussion nowadays ought to include at least some mention of what is developing in Washington. The State of the Union speech is coming Tuesday night. Watch for Obama to address the fiscal issue of states like NY, NJ, California and Illinois, (states where his party still reigns supreme.) Look for mention about creating a legal framework for potential state bankruptcies. Best guess is that any law will not be as tough as what is applied to individuals, (why? states don't pay taxes of course)...and those states will get preferred treatment. More than likely any bailout program addressing “bankruptcy” will be established so as to make it easier to sell to the public. You know, a transfer of obligations from state to federal taxpayers without any real call for discipline or the cleanup of long-term debt obligations like pensions.... Isn't this what happened at GM?
Oh, and forget about seeking Congressional assistance. The Obama administration has already shown that they don't require Congressional approval. They will figure out some method to accomplish things independent of Congress, just as they have done with TARP, or their use of the Fed. Anyway, this gets mentioned because of the impact it will have on the dollar long term, the principle reason I favor the long side of the Soft markets.
Now as for the Softs....Could there have been a stronger week for cotton futures, ever? I certainly don't remember one. Daily limits were achieved on the upside all week. Values seem destined for areas never seen before ($2.00?), but in good faith the spreads between bids and offers are so great it is hard to participate.
Coffee prices traveled down below 228, (a level frequently mentioned in my comments), then rebounded and ran towards contract highs. Such a price move generates much attention. Will new highs be made this coming week? If so, then what can we expect? First let me say that I had anticipated a drop below 228 to be worthy as a buy. In fact, I did recommend a cheap trade which resulted in a quick doubling of the KCH 270 call value. I then also recommended that those who followed that rec take potential profits, or try to lock in the trade by selling the 280 call, in effect reducing the risk to the difference in premiums (plus transaction costs.) I did that because while bullish on coffee, I am not convinced that coffee prices are prepared to fly to new high levels right away.
Yes, I am bullish on coffee prices. I think coffee will move up nicely and therefore will seek to establish solid long positions, but I think one can do so at lower levels than those that prevail. It is likely that I ought to see coffee first take a dip to test for support. That is what I am now looking for. If it dips, and finds support, then I will be a buyer. If it instead flirts with new highs, I will wait. However, if it blasts off, (which I doubt) we really do have a strong market and it may be wise to jump on board.
Cocoa prices have finally provided the type of week that I have been touting. The move up above 3140 convinced me Friday's move to 3250 generated some expected profit taking. Profit taking may continue on a test for support, but I still favor the long side and will re-establish a larger long position soon in cocoa. I do not think cocoa is finished, there is more to this soiree. Saw this announced last night as I was busy trying to watch Jet Steeler game. "Ivory Coast Cocoa Exporters Told to Stop Shipments for a Month by Ouattara." bloomberg.com
Trying to trade Sugar has frustrated me lately. I recognize I am not alone in that opinion. Will take a fresh look in the morning.....Cocoa up in response to the news, coffee and sugar down, cotton? What else but limit bid...
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