The Soft markets indeed seemed to receive pressure from outside influences during Wednesday’s session, especially in sugar as prices of sugar broke below the 11.23 low made last week, couldn’t seem to muster a reasonable bounce and thus put in a break down closing weak and looking ugly. I half expect 11.50 to be revisited, but it may need to head first down below 11.00.
Coffee too did drop in sympathy and visited the 110.30 level before staging a rally back to the plus side and 113 in the March contract.
The recovery from the lows and subsequent rally was made possible from a combination of roaster buying and day trader short covering (helped along of course by a recovery in crude and equity values). That buying, in an environment where selling was reluctant, served to brighten the mood among those traders who are holding the opinion that supply side concerns should result in coffee prices making a significant recovery. That theory however was later put to the test when values drifted in light volume back down through 112.20, (an area which earlier held a decent size bid) and then unchanged. The disappointment confused some, but late trading saw March back on the ropes not far from the day’s low. I remain a bear and think 108 and
105 are not far enough away to go unnoticed.
Cotton as well showed signs of improvement as it too had a nice bounce before backing off and settling in the middle of the day’s 200 point range. The March/May spread which has gone a bit past flat has many scratching their heads. Here’s a thought though. Years ago, before interest rate markets, back in the late 70′s and early 80′s traders used to perform cash and carry transactions in the metal markets. It was purely an interest rate play. Well, with T-bills in such high demand, (safety) isn’t there merit to parking money in an area where your return is simply getting your money back? Or are there other reasons for the shift in this spread? I’d appreciate and encourage your feedback.
Cocoa didn’t really provide anything new. There remains evidence that supply problems exist, yet the key really seems to be the victim of the dollar and economics.
Anyway, I suspect Coffee will make a stab below 110. There will be buying and prices may receive outside assistance, so be fleet of foot, but approaching the entire soft complex from the sell side seems the proper path. Sugar ought to find some volume underneath, but as sell stops get elected I also expect buying to emerge, thus I don’t think it’ll fall apart.
Jurgens H. Bauer
