Cocoa turns higher on weather concerns

COCOA

General Comments: Futures closed higher on forecasts for stressful weather for developing crops in West Africa. Hot and dry winds now could hurt the mid-crop production and also hurt some development of the crops for next year. Speculators seemed to be the best buyers as trends started to turn up on the charts. Malaysia and Indonesia crops appear to be in good condition and weather is called favorable. Overall weather patterns in West Africa production areas are good for harvest progress and for the mid-crop and next crop, although hot weather now could increase stress to trees. Demand is still reported weaker from the US and Europe, in part due to current economics and in part due to changes forced by the World Bank that encouraged forward marketing of the crops. Traders are starting to look ahead and past the midcrop harvest and note that the market could move to a production deficit next year.

Overnight News: Mostly dry conditions are expected in West Africa. Temperatures will average above normal. Malaysia and Indonesia should see episodes of scattered showers, but Malaysia will be drier this weekend. Temperatures should average near normal. Brazil will get scattered showers and warm temperatures. ICE certified stocks are higher today at 3.823 million bags. LIFFE stocks are now 2,672 standard lots, 132 large lots, and 3 bulk lots.

Chart Trends: Trends in New York are mixed to up with objectives of 2270, 2330, and 2360 March. Support is at 2210, 2180, and 2155 March, with resistance at 2265, 2280, and 2300 March. Trends in London are mixed to up with objectives of 1475, 1510, and 1535 March. Support is at 1440, 1420, and 1410 March, with resistance at 1480, 1500, and 1510 March.

COTTON

General Comments: Futures were a little lower as traders got ready for the USDA reports that will be released later this morning. It was mostly a consolidation trade yesterday. Many are worried about a bearish surprise as prices have gotten much stronger in the last week. Bears point to increasing certified stocks levels for reasons to be bearish. Demand bulls noted positive economic data released last week and positive economic data in general as a reason to buy. However, export sales reports showed some reason for worry last week as sales were down and China cancelled some recent purchases. The current low new crop prices are bringing into question what farmers in Texas and the Delta and Southeast will plant this year. Some are wondering if planted area might be lower this year here in the US due to weak prices against competing crops. The area lost would go mostly to Corn and Soybeans. Current weather featured some precipitation in Delta and Southeast areas, but western Texas was mostly dry. Delta and Southeast areas will be dry. Ideas are that the market can continue to work higher overall.

Overnight News: The Delta and Southeast will see showers and rain tomorrow and Friday, then a dry weekend. Temperatures will average near to above normal. Texas will get dry weather, although eastern areas could see very light precipitation today and tomorrow. Showers are possible in all areas on Sunday. Temperatures will average much above normal. The USDA spot price is now 76.19 ct/lb. ICE said that certified Cotton stocks are now 0.154 million bales, from 0.146 million yesterday. USDA said that net Upland Cotton export sales were 93,600 bales this year and 19,500 bales next year. Net Pima sales were 30,700 bales this year and 0 bales next year.

Chart Trends: Trends in Cotton are mixed. Support is at 80.60, 80.20, and 79.90 March, with resistance of 82.10, 82.30, and 83.40 March.

Next page: Oragne Juice, Coffee and Sugar

FCOJ

General Comments: Futures closed a little higher on speculative trading in preparation for the USDA reports that will be released later this morning. Ideas are that USDA can show smaller crops in its reports this week due to the greening disease and dry weather that has been reported in Florida. USDA has cut production potential in the previous two estimates and might be forced to trim the estimate a little more next month. Weather remains about the same in Florida. Temperatures remain mild to warm in the state, and conditions are mostly dry. Forecasts do not call for any threatening temperatures, but dry weather is creating ideas that more fruit can be lost. Fruit is holding for now, and irrigation is being used by producers to hold crop condition. Harvest in Florida of mid and early oranges is continuing, and the Valencia harvest is underway. Weather in Brazil is reported to be good. Brazil is seeing near to above normal temperatures and scattered showers. Harvest is continuing, so an increase in supplies should be expected at this time of year.

Overnight News: Florida weather forecasts call for mostly dry conditions. Temperatures will average above normal.

Chart Trends: Trends in FCOJ are up with objectives of 123.00, 125.00, and 131.00 March. Support is at 119.00, 116.00, and 113.00 March, with resistance at 124.00, 126.00, and 128.00 March.

COFFEE

General Comments: Futures were lower on speculative selling tied to reports of good weather in Brazil and increased production in Colombia. London was higher as Vietnam producers are not selling due to the Tet holiday. Prices for Arabica continue to work lower on ideas of big production. Bulls keep talking about the losses from rust in Central America and the bears keep noting that there is more than enough coffee being produced in other countries to cover the losses seen in Central America. For now, it looks like Central America could lose at least 5% of the total crop this year and more next year. Current crop development is good this year in Brazil, and production areas are getting beneficial showers for the developing crop. Production ideas remain big there, and also remain big in Vietnam even though producers there talk about the potential for 25% crop losses. Central America crops are mostly harvested. Colombia is reported to have good conditions.

Overnight News: Certified stocks are lower today and are about 2.648 million bags. The ICO composite price is now 131.24 ct/lb. Brazil should get scattered showers and storms. Temperatures will average near to above normal. Colombia should get mostly dry conditions, and Central America and Mexico should get mostly dry conditions. Temperatures should average near to above normal. LIFFE stocks are now 10,241 lots.

Chart Trends: Trends in New York are mixed to down with objectives of 140.00 March. Support is at 141.00, 138.00, and 135.00 March, and resistance is at 147.00, 150.00, and 151.00 March. Trends in London are up with objectives of 2100 and 2290 March. Support is at 2040, 2020, and 2000 March, and resistance is at 2085, 2110, and 2130 March. Trends in Sao Paulo are down with objectives of 176.00 March. Support is at 173.00, 170.00, and 167.00 March, and resistance is at 179.00, 181.00, and 183.00 March.

SUGAR

General Comments: Futures closed near unchanged after trading higher much of the day. The lack of demand news has hurt the bull case and made it hard to sustain rallies given big production ideas. Brazil said it will increase the ethanol in its gasoline blends in May, and this could help work off a lot of the surplus production in Brazil and could tighten world balance sheets. Production has been strong in Brazil so far this year, and reports say that the new crop production looks to be strong as well, so the diversion into more domestic ethanol use will help. Exports from Brazil continue to be very strong after the delayed start to the program. The Thai crushing season is underway with good production expected, but the crushing and export pace remain slow. It is possible that the crop size there has been overestimated. Traders wonder if and when India will cut offers to the market due to the lower prices and perhaps less than expected production due to some dry weather at the beginning of the growing season.

Overnight News: Scattered are expected in Brazil through this weekend. Temperatures should be near to above normal.

Chart Trends: Trends in New York are mixed to down with objectives of 1775 May. Support is at 1790, 1760, and 1730 May, and resistance is at 1850, 1875, and 1900 May. Trends in London are mixed to down with no objectives. Support is at 496.00, 493.00, and 490.00 May, and resistance is at 507.00, 512.00, and 517.00 May.

About the Author
Jack Scoville

Jack Scoville is a veteran futures market analyst specializing in grains, softs, rice, oilseeds, and tropical products such as coffee and sugar. His industry contacts in South America, Europe, Asia, and North America provide him with a unique and comprehensive view of these markets. Jack began working in the futures industry over 30 years ago and spent 10 years working on the floor of the Chicago Board of Trade in various roles, starting with The PRICE Futures Group since it was established in 1988. Jack writes daily commentaries - Morning Grains and Softs, in both English and Spanish and is regularly quoted around the world by news & wire services including Dow Jones, AP, Bloomberg, and Reuters. You can contact Jack by phone at (312) 264-4322 or by email at jscoville@pricegroup.com. Learn even more on our website at www.pricegroup.com.

Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.

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