Precious Metals: February gold closed at $1,664 per ounce, up $9.50 on Friday on the weak dollar in which it is denominated and technicals where gold was considered oversold. The "positive" news on European debt and reports that a solution of sorts may be in the works also relieved the previous selling pressure on precious metals. The expectation of a resolution for the debt crisis of Greece and others in the Eurozone is premature in my opinion. The requirements for bailout such as austerity programs cannot, in my opinion, be enough to convince the IMF, Germany, France, and even the U.S. to accept losses on their bond holdings to the extent, during some talks, of an over 50% "haircut". A simple explanation is that if Greece and others cannot service their current debt and their debt is in excess of their GDP, what expectation could their be for the ability to service the "revised" debt and the addition of still new debt? March silver closed at $31.675 per ounce, up $1.17 and for the week gained 7.3%. Silver remains our only choice for those anxious to buy precious metals. I personally would limit purchases to small amounts or through the use of call options. However, we could still see reluctance to add to existing precious metals positions. The bottom line is simply, if the "salvation" of the Euro fails, the dollar will rally and all dollar denominated commodities, especially precious metals and foreign currencies, will decline precipitously. April platinum gained $14.30 per ounce to close at $1,532.30 while March palladium lost $2.70 per ounce to close at $675.70 per ounce. Our preference here is the purchase of palladium against the sale of platinum as a spread.
Grains and Oilseeds: March corn closed at $6.11 ½, per bushel, up 5 1/2c on shortcovering after recent decline. The International Grains Council said global productions would increase to a record. We prefer the sidelines in corn for now. March wheat managed a gain of 4 3/4c to close at $6.10 ½. I don’t ever recall wheat trading at the same price of corn in my over 45 years experience. My preference here, in order to "recapture" the traditional spread between wheat and corn would be the long wheat, short corn spread. Wheat lost 7.1% for the year and I like that spread suggestion. However, that would apply only to well capitalized accounts. March Soybeans closed at $11.87 per bushel, down 10c and has fallen below our expected support level. Stay out for now but hold any call positions.
Meats: February cattle closed at $1.2455 per pound, up 3.5c on improved U.S. and global economic news and to the highest level since early December. We continue to favor the long side of cattle as feedlot placements were reportedly down 6% in December from the prior year. The possibility of supply shortages going forward could continue to support prices. February hogs closed at 85.32.5c per pound, down 75 points tied to short term cash market fundamentals. We prefer the sidelines in hogs.
Coffee, Sugar and Cocoa: March coffee closed at $2.25 per pound, down 1.65c on profittaking after recent strength was tied to lower coffee inventories in Brazil, the world’s largest coffee producer. Expectations that coffee stocks at various Brazilian cooperatives could drop by at least 26 %, the lowest level since 2002, according to the President of the CNC. However, production is expected to be between 49 and 52 million bags this year, up from last years 43.5 million bags. We could expect wide price swings as additional supply/demand fundamentals emerge. Treat coffee as a trading affair with any new positions accompanied by stop protection. March cocoa closed at $2,278 per tonne, down $42 tied to lower North American grindings, an indication of reduced demand. We could see another attempt at the $24-2,500 resistance level but stops should accompany any new purchases. The use of options is recommended rather than outright futures. March sugar closed at 24.84c per pound, up 23 points and closer to our 25c per pound intermediate goal. We prefer taking some profits "off the table" here but any decline in price could bring in new buying. Sugar lost 27% in 2011 but recent expectations for production declines in Brazil and India could prompt higher prices. We would hold long call positions but hold off on any new purchases for now.
OJ: March Orange juice closed at $2.1065 per pound of frozen concentrate, up another 10c after recent disclosures that some Brazilian oranges included in the orange juice from Florida contained a fungicide and some producers have now precluded the Brazilian oranges creating somewhat of shortage. As recent as 2009 federally approved oranges containing the fungicide had been approved by the federal government as "safe" for consumption. Ships carrying the orange juice imports are being held up at U.S. ports while FDA officials test for traces of that fungicide. OJ prices have "skyrocketed" and the public is avoiding juice that is not limited to Florida oranges. We could see further price increases but at this point we could also see demand for juice at the retail level decline so we would purchase put options. Markets tend to be overdone in one direction or another after reports emerge affecting fundamentals.
Cotton: March cotton closed at 98.6c per pound, on Friday up 43 points on pre-weekend shortcovering after recent declines. China remains a major factor in the price direction for cotton and concern that the "slowdown" in economic growth could impact their buying of cotton has weighed heavily on prices. We like cotton at below $1.00 per pound for an eventual move, based on our expectation for improved demand to the $1.20-$1.25 level. However we would only participate in this market through the use of call options.
John L. Caiazzo