CoffeeThe bull market in coffee came to a screeching halt this week as market participants are starting to get a glimpse of the Brazilian coffee crop that is due to begin harvest within the next several weeks. While the 2008 crop will fall short of a new record, it will go a long way towards alleviating the tight supplies that have been squeezing prices. With the Vietnamese holiday now over, supplies from the world’s second largest producer are finally infusing beans into the cash market. This should be able to bridge the supply gap between now and the beginning of the Brazilian harvest.
While we are not exactly bearish the market, one thing traders should consider is that the global bull market in commodities has largely been driven by far East demand from emerging markets such as China and India. However, unlike soybeans and crude oil, China is not a large consumer of coffee. Thus, future price movements will not have the rising demand element enjoyed by some of the other physical commodities.
Orange juiceOrange Juice prices are collapsing under the weight of heavy supplies and waning demand. There are two major problems frozen concentrate orange juice (FCOJ) is facing right now. One is that processors continue to hold large quantities of expensive orange juice in storage and have been unwilling to lower prices at retail levels, thus lowering demand. Secondly and possibly more importantly is the advent of so many more choices from competing products such as vitamin water. Such drinks offer, or claim to offer, the same health benefits of Orange Juice without the carbs or calories. These substitute products are thought to have lowered demand for juice up to 10% over the last year or two.
CocoaCocoa prices soared to nearly $3,000 per ton as commercial and spec buying have continued to pour into the market. Not only has cocoa enjoyed the overall commodity bull market fueled by the falling dollar, it continues to possess some of the most bullish fundamentals on the board. With production figures falling almost daily from West African growing regions, the demand side continues to rise. It creates what appears to be a bullish set up for months to come.
Trading suggestions: We like calls sales in coffee and will also look for put selling opportunities in cocoa on a technical pullback.
James Cordier and Michael GrossLiberty Trading Group/OptionSellers.comwww.OptionSellers.com .
