Why Brazilian drought is not so sweet

Softs update

SUGAR(NYBOT:SBK14)          

Futures were sharply higher as traders worried about the drought in Brazil and the potential for crop losses from production for the coming harvest.  Some rain was reported over the weekend that should have been very beneficial and wet weather forecasts continue in Brazil for late this week.  Charts show that the market could be turning short term trends up. It still appears that the market has established at least a short term trading range between 15.00 and 16.50 in May New York futures and is now at the upper end of that range. Thai Raw Sugar differentials are steady to weaker again this week.  The exporters there have been offering Raws but should start to offer Whites soon.  India announced a subsidy for exporters and traders after dictating that they pay farmers high prices for Sugarcane.  The subsidy should be enough to let exports start flowering.  However, the market mostly ignored the news after an initial push lower because of the dry weather forecasts in Brazil.  Weather conditions in key production areas around the world are rated as mostly good except for the dry weather in Brazil.

Overnight News:  Brazil could see dry weather and near to above normal temperatures.

Chart Trends: Trends in New York are mixed to up with objectives of 1700 and 1800 May.  Support is at 1620, 1600, and 1585 May, and resistance is at 1660, 1670, and 1700 May.  Trends in London are up with objectives of 464.00 May.  Support is at 444.00, 440.00, and 437.00 May, and resistance is at 457.00, 461.00, and 467.00 May. 

COTTON(NYBOT:CTH14)

Futures closed higher on ideas of tight supplies.  Demand for export has turned soft in the last week to 10 days, but domestic demand is said to be strong  However, domestic supplies are said to be tight, and USDA projects tight ending stocks at the end of the current marketing year.  Cash market premiums are reported higher in the last few sessions, and some think that producers have sold most of their production.  Spinners in the east are the ones said to be shortest of supplies.  Prices are high enough now to make some producers consider increasing planted acres next year.  The market needs to keep seeing demand to keep prices well supported.   Brazil conditions are reported to be very good in Bahia with warm temperatures.

Overnight News:  Delta areas could see drier weather and southeast areas drier weather, but all areas will see some rain Thursday and Friday.  Temperatures will average above normal through Thursday, then near to above normal.  Texas will see dry weather.  Temperatures will average above normal.  The USDA spot price is 84.45 ct/lb. today.  ICE said that certified Cotton stocks are now 0.250 million bales, from 0.250 million yesterday.  

Chart Trends:  Trends in Cotton are mixed.  Support is at 86.80, 86.70, and 86.30 March, with resistance of 88.40, 89.30, and 89.90 March.

FCOJ(NYBOT:OJH14)

General Comments:  Futures closed lower as the weather stays good in Florida and the chances to freeze trees diminishes by the day.  The weather might be stressing trees in Brazil as reports indicate that many areas still need rain despite some better precipitation reported over the weekend.  Florida is harvesting a very small crop of oranges due to disease problems with the greening disease.  Growing and harvest conditions in the state of Florida remain mostly good, with mostly dry conditions and moderate temperatures.  More rain would be beneficial.  Irrigation water is available and is being used.  Harvest remains active for early and mid-oranges, but fruit sizes are reported to be small.  The Valencia harvest is expanding.  Brazil is seeing near to above normal temperatures and mostly dry conditions after showers and rains moved through production areas over the weekend.  Dry weather or only light showers are forecast through this week, but better rains are expected this weekend.

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

Chart Trends:  Trends in FCOJ are mixed to down with no objectives.  Support is at 142.00, 140.00, and 139.00 March, with resistance at 145.00, 147.50, and 149.00 March.

COFFEE (NYBOT:KCH14)

Futures closed sharply higher in New York on ideas that coffee has been lost in Brazil.  Some now say that 10% of the crop has been lost or damaged.  There will not be any field surveys done for a couple more weeks yet.  Traders also keep waiting for more coffee to appear from Vietnam.  Trends are up in all three markets.  Exports so far this year from Vietnam have been disappointing and below the level of last year.  This was true in January as well.  The weather in Brazil has produced ideas of less production for this year and maybe next year as trees get stressed.  Good rains are now forecast for this week which will help stabilize losses.  Losses appear to be at least 5% so far, but wire reports yesterday noted that some analysts now think losses are closer to 10% of the total crop.  It is possible that not enough rain will fall this week to help production, but the situation should turn more stable as the rains will provide some help.  Differentials are still holding fairly firm in Central America and offers have turned very light.  Bids are becoming more active with reports of roasters caught short of supplies.  Differentials in the region are higher than last week. 

Overnight News:  Certified stocks are slightly lower today and are about 2.631 million bags.  GCA stocks are now 5.029 million bags, from 5.086 million at the end of December.  The ICO composite price is now 137.33 ct/lb.  Brazil will get mostly dry conditions or light showers, with best precipitation totals expected this weekend.  Temperatures will average near to above normal.  Colombia should get scattered showers, and Central America and Mexico should get mostly dry weather.  Temperatures should average near to above normal. 

Chart Trends:  Trends in New York are up with objectives of 152.00 and 164.00 March.  Support is at 144.00, 142.00, and 140.00 March, and resistance is at 157.00, 159.00 and 162.00 March.  Trends in London are mixed.  Support is at 1760, 1750, and 1740 March, and resistance is at 1825, 1880, and 1905 March.  Trends in Sao Paulo are up with objectives of 172.00 and 184.00 March.  Support is at 172.50, 165.50, and 164.00 March, and resistance is at 177.00, 180.00, and 182.00 March.

COCOA (NYBOT:CCK14)       

Futures closed a little lower in consolidation trading.  The market needs news and worries about dry weather in West Africa that could stress trees and hurt midcrop production.  A good midcrop production is possible from Africa, but producers say more rain is needed, especially in central and northern areas.  It will turn mostly dry again this week and whatever stress is there will increase.  There is some talk of a delayed mid-crop harvest, but little talk of actual yield losses so far.  There is also talk of some losses in Indonesia and other countries in Southeast Asia from recent heavy rains.

Overnight News:  Mostly dry expected in West Africa, but a few showers are expected in southern areas.  Temperatures will average near to above normal.  Malaysia and Indonesia should see scattered showers.  Temperatures should average near to above normal.  Brazil will get dry conditions or light showers and near to above normal temperatures.  ICE certified stocks are lower today at 3.555 million bags.  

Chart Trends:  Trends in New York are mixed to up with objectives of 3015 and 3095 May.  Support is at 2935, 2890, and 2875 May, with resistance at 2990, 3020, and 3050 May.  Trends in London are mixed to up with objectives of 1920 and 1985 May.  Support is at 1825, 1820, and 1800 May, with resistance at 1870, 1900, and 1930 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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