The Soft Spot(3)

CHICAGO - Jul 23/10 - SNS -- Following is the orange juice, cotton and coffee comment from PFGBEST Research.

By Robin Rosenberg

With another summer week behind us, the 'Dog Days of Summer' lurk just around the corner and the softs are singing the 'Summertime Blues'. The Reuters Jeffries Commodity Channel Index has retreated from the high side of its seven month old trading range. Coffee has fallen more than ten handles from last week's high. Cocoa has reversed to the downside as well. Cotton has backed off, giving back the majority of last week's rally and Sugar finds itself at major resistance. What's up with all of this? Or should I say down?

Coffee 07/23/2010

Life Time Trading Range 41.50 Cents - $337.50 per Pound

Trades on The ICE 2:30 AM ' 1 PM CDT

Coffee is playing host to a myriad of bearish supply side fundamentals. The continuing good weather in Brazil will bring a large harvest. Expectations are for large Colombian and Central American crops as well. The quality of Colombian Coffee should also show much improvement this growing season. Abnormal weather produced by 'El Nino' wreaked havoc on last season's Colombian and some Central American crops. Exchange stocks continue to decline.

Short term tightness in supply has been supportive to the Coffee market of late. While awaiting the Vietnamese harvest later this year, Asian supply is tight as well. As the new crop flows into the marketplace this short term tightness will become history. The weakness in Coffee futures this week has seen Coffee futures break to support. There are numerous new long positions in Coffee. Funds have been active buyers. In fact, they've bought enough contracts to cause open interest to become overbought. Further weakness will no doubt give birth to liquidation selling.

Technical Analysis is a methodology. The information below is not to be taken as trading advice or as a recommendation to buy or sell any commodity future or option. It may or may not agree with the fundamental analysis that appears above.

Weekly Technical Indications: This week's action saw Coffee retreat from the top band of the Bollinger study. This week's low of 155.80 missed the nine bar moving average of 155.52 by just a hair. Buyers came in at this level and proceeded to rally market back to the upper end of the week's trading range. The stochastic is locked in sell mode and heading lower. The R.S.I. stands at 64.48, lower than last week's reading of 71.69. The M.A.C.D. histogram stands at and 3.92 lower than last week's reading of 4.67. In my opinion this is market action is corrective in nature. Coffee looks to be forming an up flag that projects the Coffee price to two dollars.

Do not trade without the use of protective strategies such as stops and or options.

Cocoa 07/23/2010

Life Time Trading Range $444 ' $5379 per Tonne

Trades on The ICE 3 AM ' 1 PM CDT

July LIFFE Cocoa deliveries saw 240,000; yes Two ' Hundred ' Forty ' Thousand ' Tonnes, of Cocoa delivered to one hedge fund! This is the largest delivery of London Cocoa to one party in fourteen years, and very close to seven percent of the world's annual production! When one party takes delivery of such a large quantity of any commodity it invites investigation from government regulators. LIFFE has issued a statement that it saw no abuse with their July Cocoa futures contract. This severely depleted deliverable London Cocoa stocks and saw London Cocoa move up to thirty two year highs. I will keep a close eye on this situation.

On the other hand, ICE Cocoa has been at the mercy of improving weather conditions in the Ivory Coast. The threat of increased supply along with concern related to deteriorating economic conditions saw Cocoa futures decline to their lowest level since the end of June. Ivory Coast cash prices moved higher in response to the London Cocoa situation as short term supply is tight. Keep in mind that supply will increase substantially if the Ivory Coast main crop comes in as strong as expected. This should see choppy range bound trade continue for the near future.

Weekly Technical Indications: In a reversal of the prior week's action Cocoa is below the center band of the Bollinger study and the 9 bar moving average. The stochastic is locked in sell mode. The R.S.I. stands at a bearish 47.81 and lower than last week's reading of 55.47. The M.A.C.D. histogram stands at 15.70, a good deal lower than last week's indication of 23.34. The Cocoa market continues to be trapped in a trading range. I will take to the sidelines and await opportunity to make itself known.

Do not trade without the use of protective strategies such as stops and or options.

Cotton 07/23/2010

Life Time Trading Range $26.84 ' $117.20 per Pound

Trades on The ICE 8 PM ' 1:30 PM CDT (Next Day)

The looming large Cotton crop is weighing heavily on the shoulders of the Cotton futures market. Having planted close to 11 million acres, a million more than expected, has industry insiders concerned Cotton supply will outstrip demand. This week's Housing report was disappointing. Thoughts that a slowing economy will see consumer purchasing power lessen over the coming months. Earlier this week, Cotton attempted to extend last week's strength only to fall back to the low end of last week's trading range. Because the preceding is only part of the equation we may still see a strong Cotton market. The bull market in Cotton was primarily based on exports. If we see strong exports, higher Cotton prices could be in the offing.

U.S. Upland Cotton sales for the week ending July 15, 2010 were 92,700 bales for delivery in 2009-10. This was down 14 percent from the previous week and 13 percent below the prior four week average. To reach the USDA export projection for the 2010-11 season, 186,100 bales need to be exported weekly. This is the second week in a row that the export figures were subpar. Exports were the driving force behind strong Cotton prices. Their absence causes me to lean toward the bearish side for the time being. Ben Bernanke's comment to senators this week that the economic outlook 'remains unusually uncertain.' does not make me feel warm and fuzzy. The 2010-11 Cotton crop has a long road ahead of it, we shall have to wait and see what route it decides to take.

Weekly Technical Indications: Cotton has managed to move above the 9 bar moving average and this week's high pierced the center band of the Bollinger study, but was unable to hold. The stochastic remains in sell mode but has flattened. The R.S.I. stands at a bullish 53.09, a lower than last week's indication of 53.39. The M.A.C.D. histogram stands at -0.95, just a bit better than last week's -1.07 reading. Technical indications for Cotton remain bearish.

Do not trade without the use of protective strategies such as stops and or options.

Sugar 07/23/2010

Life Time Trading Range 2.30 Cents ' 66.00 Cents per Pound

Trades on The ICE 2:30 AM ' 1 PM CDT

The weather at this time poses no concern to the Sugar crops of Brazil or India. Mexico's Agricultural Minister said that the country produced 4.8 million tonnes of Sugar. Originally this year's crop was forecast to 4.5 million tonnes. This makes importation of Sugar to Mexico unnecessary. Sugar mills are hoping for 18 cents per pound while buyers are treading lightly waiting to see what direction Sugar prices take. Sugar, having advanced to major resistance must await the development of further bullish fundamentals to move higher.

Brazilian exports of late have been stellar, and as the harvest continues exports will be escalating. This season's crop, expected to yield a surplus, follows two consecutive growing seasons of crop deficits. As of Tuesday one hundred eleven vessels were either docked or anchored in Brazilian ports waiting to be loaded with 3.56 million tonnes of Sugar. Many of these vessels are bound for Asian and Middle Eastern nations attempting to rebuild low stocks before Ramadan in August. An added glitch is that UNICA, Brazil's Sugarcane Industries Association has warned that though dry weather has helped the harvest, development of the cane could have been hampered by it. This has Unica reassessing their original output figure of 34 million tonnes of Brazilian production for 2010-11.

Weekly Technical Indications: This week Sugar is above the center band of the Bollinger study, the 9 bar moving average and above the 100 bar (Weekly) moving average for the first time since March. The stochastic is in sell mode. Sugar has been in rally mode for eleven weeks and somewhat overbought. The stochastic reading is indicative of that. This is not of great concern but needs to be monitored closely. The R.S.I. is higher and stands at 51.72 versus last week's reading of 46.07. The M.A.C.D. histogram stands at +.72 versus +.59last week. This is quite the bullish scenario.

Do not trade without the use of protective strategies such as stops and or options.

PFGBEST Research Team

Phone: 800-361-6855 or 319-553-2181

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