The “Smart Money” and Your Morning Cup of Coffee
Last week Dec 2010 coffee opened at 18150 and closed at 18640. Back in June I wrote about coffee and how the uptrend was just beginning. I did get some responses on how coffee would not continue going up, even having one trader mention he was shorting coffee. Seeing how the commercials, swap dealers and managed money started posturing in their net positions, the largest percentage of OI, I felt confident in the bull. Along with fundamentals showing tightening supplies and the weakening U.S. dollar (thank you Ben Bernanke), coffee had clear skies to continue the uptrend. We saw Dec 2010 coffee hit a high on Sept. 8 at 19865. Off course, before this happened we did have a cleansing of sorts on Tuesday Aug. 24 when Dec coffee opened at 18275 and closed the volatile day at 16845. Of course many thought coffee was done with the close of 16660 on Wednesday Aug. 25. Of course the next nine days proved the bears wrong with the high being hit on Sept. 8. Since then this has been a volatile market to say the least. We will need to keep an eye on the U.S. dollar because any rally up could cause coffee prices to drop, but the most important thing I will be watching for is the liquidating of positions by the commercials, swaps and managed money. That will tell us when the uptrend is over.
Proceed to Page 2 for the latest COT data...
This past week the producers (true commercials) came in at 67,446 net short. While the swap dealers came in at 33,821 contracts net long as well as the managed money which came in at 23,240 contracts net long. See on the weekly chart below that the producers and managed money have liquidated some of their contracts. Also, keep an eye on fundamentals, larger supplies could be coming. Trade well and follow the trend.
Commercial Net Tracker instructions
This form tracks the Commitment of Traders (COT) data for the commodity futures market. This form "looks" at the most recent five weeks of COT data and provides visual indications of the data. A. If the current value is at a 12-month low, the cell will display a red/burgundy background. B. If the current value is at a 12-month high, the cell will display a green background. C. If the current value went from net negative to net positive, the cell will display a blue background (indicating a bullish condition). D. If the current value is both a 12-month high and also went from a net negative to a net positive, the background will be green. You should view the data with green backgrounds to determine if they also went from net negative to net positive.
| Commodity |
12-mo low |
12-mo hi |
15-Oct |
8-Oct |
| Cattle (feed) |
-2,917 |
5,766 |
5,746 |
4,461 |
| Cattle (live) |
-73,179 |
14,641 |
-66,362 |
-68,562 |
| Hogs |
-38,039 |
17,814 |
-24,036 |
-25,150 |
| Corn |
-373,558 |
119,389 |
-348,668 |
-346,946 |
| Oats |
-5,149 |
829 |
-4,858 |
-5,090 |
| Soybeans |
-156,977 |
56,797 |
-145,835 |
-140,340 |
| Soybean meal |
-90,487 |
-6,350 |
-60,390 |
-59,838 |
| Soybean oil |
-111,786 |
32,394 |
-106,693 |
-111,786 |
| Wheat |
-16,413 |
82,654 |
20,346 |
15,518 |
| Orange juice |
-22,027 |
-6,588 |
-15,611 |
-16,880 |
| Coffee |
-47,729 |
-4,637 |
-33,625 |
-33,224 |
| Cocoa |
-49,897 |
8,586 |
5,198 |
7,109 |
| Sugar |
-241,259 |
-104,983 |
-187,315 |
-177,901 |
| Cotton |
-69,857 |
-12,970 |
-46,985 |
-47,524 |
| British pound |
-16,224 |
97,211 |
-14,159 |
-16,224 |
| Canada dollar |
-105,107 |
-13,109 |
-69,452 |
-68,649 |
| Euro FX |
-56,712 |
124,494 |
-49,059 |
-55,989 |
| Japanese yen |
-66,127 |
92,866 |
-49,891 |
-51,881 |
| Swiss franc |
-37,855 |
27,482 |
-29,852 |
-33,169 |
| US dollar index |
-46,250 |
12,521 |
1,636 |
2,587 |
| Mexican Peso |
-118,008 |
-14,488 |
-91,615 |
-90,577 |
| Australian dollar |
-102,706 |
-10,793 |
-86,116 |
-88,073 |
| S&P 500 |
-83,827 |
33,981 |
-36,372 |
-33,402 |
| T-note -10 yr |
-59,818 |
356,573 |
-54,903 |
-11,593 |
| T-bond -30 yr |
-43,324 |
158,206 |
-22,570 |
-16,717 |
| Eurodollar |
-1,179,414 |
105,872 |
-1,138,509 |
-1,179,414 |
| Crude oil |
-152,994 |
-23,057 |
-143,237 |
-122,931 |
| Heating oil |
-69,179 |
7,568 |
-56,184 |
-59,477 |
| Unleaded gas |
-91,597 |
-10,453 |
-70,057 |
-63,489 |
| Natural gas |
108,146 |
179,433 |
146,471 |
136,757 |
| Copper |
-30,974 |
1,793 |
-27,323 |
-26,626 |
| Gold |
-308,231 |
-207,691 |
-300,022 |
-299,498 |
| Platinum |
-29,870 |
-15,759 |
-29,870 |
-28,375 |
| Silver |
-66,004 |
-37,800 |
-61,504 |
-62,127 |
Proceed to Page 3 for this week's detailed fundamentals charts...
Fundamentals
Dec Coffee prices are consolidating mildly below last month’s 13-year high. Bullish factors include:
- Tight supplies with the drop in NYBOT monitored coffee stockpiles to a 10-year low of 1.90 million bags.
- ICO’s estimate for a global coffee deficit of eight million bags for current marketing year (2009-10) and its statement that the coffee market is “extremely vulnerable to sharp price shocks” if there are any more supply disruptions caused by bad weather.
Bearish factors include:
- Recent rains in Brazil that eased dry weather concerns.
- The prediction from agricultural consultant Safras & Mercado that Brazil’s bumper coffee harvest this year totaled 54.6 million bags.
Fundamental Outlook—Bull Market Correction—Coffee prices corrected lower from their recent 13-year high, but fundamentals remain bullish because of tight supplies. Coffee production in 2009/10 fell 5.9% y/y to 120.6 million bags (ICO), but production should rebound to 133-135 million bags in 2010/11 (ICO). Brazil’s 2010/11 (July-June) production will rise 23% y/y to 55.3 million bags on their favorable 2-yr cycle (United States Department of Agriculture).
Legend:
CC - consecutive closes
UTL - uptrend line
DTL - downtrend line
