Jurgens Bauer’s Soft Commodity Comments
With the exception of cocoa the soft markets on Thursday broke sharply lower, with coffee and sugar breaking down below support in their ranges, and cotton closing limit down at 4360, (synthetically going out 4310/4320. So, the short side provided a good ride and this even while the dollar was weaker. In fact, because the dollar is so much at play in the cocoa market, perhaps that’s what kept cocoa from falling along with the rest of the complex.
More likely we will continue to experience weakness and lower overall prices. Why not, the trends are down and we all know the trend is your friend, right?
Regardless of how oversold these markets may appear from time to time, more weakness is apt to be in store since the economic outlook sucks…(can I use that word?).
Anyway, tomorrow is Friday after a down week and therefore some short covering is perhaps in order. This will be especially true if assistance is provided from oil and equities. So be prepared for such price action and strongly consider using it to re-establish fresh shorts. Oh yeah you might have to hold shorts over the weekend and that can be scary when things seem to change at the drop of a hat, so use options….In fact using any strength to get short has been an excellent method of obtaining a potential profitable trade in the softs. I look for a potential bounce in sugar, basis March, from 1070-1050 back to 1100, and maybe even 1130-1150. I’m looking for 1050, then any lower and we’ll probably see some opportunities to sell puts. But boy will I seek to get short on any significant strength because there is too much sugar around and in the hands of folks who need cash.
In my opinion the short side is the right side in these markets, just don’t find yourself getting married to any positions. Exchanging vows with a positions in these markets is grounds for a messy divorce.
These markets are thin as can be and vulnerable to serious short term moves. We saw that today and we’ll see it again, in either direction, but the trend is your friend, follow it until it tells you not to.
Favorite trades: Seeking to buy some F, yes Jan coffee puts. I like the 110′s and maybe even 100′s. why, because of the limited risk and large potential. If you like hedge up with some futures. Sure you can choose to use another month, but the leverage is available there. The key is being long volatility and you do that by owning options. Longer term I might seeking to leg into some Sep coffee back spreads, (long term the market may avail itself to positive fundamentals) if you’d like to explore that call me. I also like buying cocoa straddles, yes you’ll have to pay up, but I think that market will move and move big.
As for cotton, the export numbers were terrible and you can access them via a link provided below. Cotton has no demand and I still aren’t heard comments back on the H/K spread. Come on guys what do you think?
Anyway, must go, need some rest. Jurgens
