Coffee and cotton help take the sting out of stock market whiplash

COT Data

In coffee, commercials came in on the Aug. 5 report at -6,076 contracts net-short at a 52-week high and this past week were at -6,805 contracts net-short. Keep in mind that the 12-month low is -46, 751 contracts. See the weekly chart below to see where we shorted coffee.

In cotton, commercials this past week were -32,468 contracts net-short. Far from the 52-week low of -69,857 contracts net-short, but much closer to the 52-week high of -26,984 contracts net-short. If you need help understanding the COT, send me an email at Gary@TrendsinFutures.com for a free e-book. See the weekly chart for cotton, below, to see where we went short.

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.

If you need help understanding how to understand how to use the COT report to your benefit, please email me at Gary@crbtrader.com and put COT report in the subject line. Please include your name and telephone number in the email.

Proceed to Page 3 for this week's detailed fundementals charts...

Fundamentals

Coffee prices extended their downward correction to a 6-1/2 month low from May’s 14-year high.

Bearish factors include:

1. ICO data showing that global coffee exports from October-July were +16% y/y at 80.7 million bags.
2. ICO’s statement that Brazil’s coffee crop losses from frost are “not significant.”

Bullish factors include:

1. ICO’s prediction for global Arabica coffee bean production to fall -6.2% in 2011-12 to 78.3 million bags.
2. ICO’s statement that coffee output in Columbia and Indonesia may be smaller in 2010-11 than initial estimates after heavy rainfall hurt crops.
3. USDA forecasts for global coffee output to fall 2.1% to 135 million bags in the 2011-12 marketing year.
4. ICO’s statement that coffee supplies will be “tight” the rest of the year as stockpiles in producing nations stay near a 40-year low of 13 million bags.

Fundamental Outlook — Medium-Term Bearish — Coffee prices are correcting lower from May’s 14-year high, but the long-term trend remains bullish. Coffee production in 2010/11 rose +8.8% y/y to a record 137.9 million bags (USDA), but production should fall -2.1% y/y 135 mln bags in 2011/12 Brazil’s 2011/12 (July-June) production will fall -9.7% y/y to 49.2 million bags on the off-year of the biennial cycle (USDA).

Cotton prices are attempting to hold above last month’s 10-1/2 month nearest-futures low.

Bearish factors include:

1. USDA’s Aug. 11 hike in its 2010/11 US cotton output estimate to 16.55 million bales from a July estimate of 16 million bales along with the hike in its U.S. carry-over estimate to 3.3 million bales from last month’s estimate of 3 million bales.
2. USDA’s Aug. 11 hike in its 2011-12 global carry-over estimate to 52.66 million bales from July estimate of 51 million.
3. Reduced Chinese demand after June Chinese cotton imports fell for a fifth month by -32% y/y to 120,000 MT, the lowest June tally in 8 years.

Bullish factors include:

1. The driest October-May period in Texas since records began in 1895, which has hurt the U.S. cotton crop that as of Aug. 7 was only 30% in good-to excellent condition, far below last year’s 65%.
2. USDA’s Aug. 11 cut in its 2010/11 global cotton output estimate to 122.71 million bales from a July estimate of 123.16 million bales.

Weekly U.S. cotton exports (week ended Aug. 4) were 82.9 thousand running bales; cumulative 2010/11 (Aug-July) exports up -53.7% y/y.

Fundamental Outlook — Medium-term Bearish — Cotton prices are holding just above their recent 10-1/2 month low on demand concerns.

In addition, supply has eased up with USDA revisions and the 2011-12 global stocks/use ratio is now at 45.7%, the highest in three years.

Have a prosperous trading week.

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