Cotton falls as government spending cuts loom

COFFEE

General Comments: Futures were higher again Friday and closed the week on a positive note. The market acts as if all the bearish news is now part of the price structure. Meanwhile, increasingly dire reports of rust in Central America and the production cuts that it is causing are getting more attention. 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 20% of the total crop this year and more next year. Losses next year could be 30% or more of the crop. Current crop development is still good this year in Brazil, and production areas are getting drier weather for the developing crop. There is some talk the drier weather could stress trees. 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 higher today and are about 2.681 million bags. The ICO composite price is now 132.23 ct/lb. Brazil should get scattered showers through Wednesday, then mostly dry weather. Temperatures will average near to above normal. Colombia should get scattered showers, and Central America and Mexico should get mostly dry conditions. Temperatures should average near to above normal. ICE said that 36 contracts were delivered today against March futures and that total deliveries for the month are 97 contracts. Latin American Washed Coffee exports were 2.18 million bags, up 7.3% from January, 2012. Marketing year to date exports are now 8.21 million bags. India could loser about 5% of the Robusta crop as unseasonal rains have hit at harvest time.

Chart Trends: Trends in New York are mixed. Support is at 141.00, 137.00, and 134.00 May, and resistance is at 145.00, 147.00, and 149.00 May. Trends in London are mixed to up with objectives of 2110 and 2145 May. Support is at 2070, 2040, and 2010 May, and resistance is at 2110, 2130, and 2140 May. Trends in Sao Paulo are mixed. Support is at 180.00, 178.00, and 177.00 September, and resistance is at 185.00, 187.00, and 189.00 September.

SUGAR

General Comments: Futures closed higher in consolidation trading on Friday. Some are looking for a short covering rally in short term as a short squeeze is said to be possible in New York March contracts. The markets have been moving sharply lower on estimates and reports of big world production, but some demand is starting to appear as Iraq was a big buyer early last week. Supplies do in fact appear big around the world, but increasing offtake could finally start to offer more stability to the prices. 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. However, some Brazil production areas have been too dry in the south, so the production could suffer. Recent rains were beneficial, and more rain is possible in the region this week. Exports from Brazil continue to be very strong as stevedores and the government talk about work rules. The stevedores have staged some short term strikes, but called off one scheduled for tomorrow on reports of good progress in the talks. Chart patterns now show that a rally is possible, with London likely to be the leader in any rally attempt.

Overnight News: Mostly dry weather expected in Brazil. Temperatures should be near to above normal. Russia has produced 4.753 million tons of Sugar from doemstic beets, down 5.5% from last year. China imported 243,038 tons of Sugar ijn January, up 71.4% from last year.

Chart Trends: Trends in New York are mixed. Support is at 1780, 1760, and 1730 May, and resistance is at 1825, 1850, and 1875 May. Trends in London are mixed to up with objectives of 515.00 and 528.00 May. Support is at 499.00, 494.00, and 489.00 May, and resistance is at 508.00, 512.00, and 517.00 May.

COCOA

General Comments: Futures closed higher Friday in recovery trading. Chart patterns are consolidating and market trends are still down overall, but ideas are that the market can turn higher now that the main harvest in West Africa is about over. The weather was warm and dry in West Africa over the weekend and is expected to stay that way this week. 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, but a Little hot and dry for the mid crop and next main crop development. Traders are starting to look ahead and past the midcrop harvest and note that the market could move to a production déficit next year. More buying is being noted in deferred months at this time due to smaller production ideas for the coming crops.

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 said that 0 contracts were delivered today against March contracts and that total deliveries for the month are now 811 contracts. ICE certified stocks are sharply higher today at 4.146 million bags.

Chart Trends: Trends in New York are mixed to down with objectives of 2030 May. Support is at 2100, 2085, and 2050 May, with resistance at 2150, 2190, and 2210 May. Trends in London are mixed top perhaps up with objectives of 1455 and 1490 May. Support is at 1420, 1405, and 1390 May, with resistance at 1440, 1450, and 1475 May.

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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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