Daily Soft Markets Commentary Thursday February 22, 2018 DAILY COCOA COMMENTARY Steady uptrend on firm demand and some supply uncertainties Cocoa has been able to extend its current upmove to the highest price level since mid-november. With potential West African supply issues gaining more traction with the market, cocoa prices could be heading for a retest of their mid- November highs. However, this may be a difficult task as rains fall in some key producing areas. Cocoa once again was able to overcome weakness in the Eurocurrency and British Pound, but both currencies (as well as global risk sentiment) took a negative shift after cocoa's close that could lead to early headwinds today. There is daily rainfall in the forecast for growing areas in western Ivory Coast through the end of this month but rainfall totals will be relatively light and will come with daily high temperatures that are expected to climb above 90 degrees Fahrenheit (32 degrees Celsius). With many of those areas in a significant moisture deficit after the dry season, it may be difficult for cocoa production to match early season expectations. The Dollar's resurgence this week could dampen cocoa's near-term demand prospects, particularly in Europe which accounts for one-third of all global grindings. There are increasing signs that West African output has been impacted by negative weather conditions which increases the chances of supply/demand balance this season. May cocoa will find near-term buying support at 2105, while resistance is at 2200 while the next upside target is at 2245. COCOA TECHNICAL OUTLOOK: COCOA (MAY) 02/22/2018: Studies are showing positive momentum but are now in overbought territory, so some caution is warranted. The market's close above the 9-day moving average suggests the short-term trend remains positive. With the close over the 1st swing resistance number, the market is in a moderately positive position. The next upside target is 2212. The 9-day RSI over 70 indicates the market is approaching overbought levels. The next area of resistance is around 2198 and 2212, while 1st support hits today at 2148 and below there at 2111. DAILY COFFEE COMMENTARY Still probing for low with massive Brazil crop expected Coffee prices remain on the defensive this week as they have lost more than 6 cents in value (4.9% lower) over the past four sessions. While the market should now have a record high net spec short position, it needs a bullish
supply/demand catalyst to trigger a short-covering rebound. Brazil's largest coffee co-op Cooxupe forecast that they would export 4.4 million bags during 2018, which would be an 8% increase over last year. Cooxupe's farmers are mostly located in the Arabica-growing region of south Minas Gerais, and they are expected to produce 8.4 million bags of coffee this year versus 6.7 million during 2017. Vietnamese producers will come back on-line today following the Tet holiday, which should result in a near-term surge of coffee supply over the next few weeks. Top African exporter Uganda should get near normal rains during the March-May period according to their Meteorological Authority, with rains starting in the Lake Victoria Basin and Central regions expected to start in late February. ICE exchange coffee stocks fell by 2,866 bags on Wednesday and have dropped back below the 1.9 million bag level. While Brazil's harvest will not start until June, it is difficult to argue against top-end crop estimates when the south Minas Gerais region has daily rainfall in the forecast through next weekend. Demand may be showing signs of improvement, but coffee prices may need to find bullish supply news in order for prices to find their footing. Near-term resistance for May coffee is 120.55 and 121.20 with support at 116.90 and 115.60. COFFEE TECHNICAL OUTLOOK: COFFEE (MAY) 02/22/2018: The market made a new contract low on the break. Daily stochastics declining into oversold territory suggest the selling may be drying up soon. A negative signal for trend short-term was given on a close under the 9-bar moving average. The swing indicator gave a moderately negative reading with the close below the 1st support number. The next downside target is 117.78. The 9-day RSI under 30 indicates the market is approaching oversold levels. The next area of resistance is around 119.60 and 120.57, while 1st support hits today at 118.20 and below there at 117.78. DAILY COTTON COMMENTARY Old crop supply ample and new crop looks even higher It only took two days for the market to retrace half of the Jan 12th to Feb 16th break. The upside from here seems limited as the supply fundamentals into the 2018/19 season remain bearish. The market experienced strong buying support for the second day in a row yesterday and the rally may help the market correct some of the oversold technical readings. May cotton is still discount to the July and the exchange stocks are growing so there does not seem to be any tightness developing. ICE exchange deliverable stocks continue to rise and reached 92,923 bales this week, unchanged on the day. Open interest went down again on Tuesday (2,312 contracts) which was a bit of a surprise and would indicate that some short-covering was likely. Export sales have been strong, and there could have been some commercial buying this week to help support the bounce. While there seems to be ample old crop supply, the new crop situation for planting cotton in the US is still favorable for cotton production which would suggest even higher production and stocks next year. The exchange raised the daily trading limit to 4 cents or 400 points. The upside appears limited by ample supply. The key resistance points for May cotton include 80.46 and 81.40, with 77.65 and 77.01 as short-term support.
* Sell May cotton 84.00 call at 176 with an objective of 0. Risk a total of 65 points from entry. COTTON TECHNICAL OUTLOOK: COTTON (MAY) 02/22/2018: The market now above the 40-day moving average suggests the longer-term trend has turned up. Momentum studies are rising from mid-range, which could accelerate a move higher if resistance levels are penetrated. The market's close above the 9-day moving average suggests the short-term trend remains positive. A positive setup occurred with the close over the 1st swing resistance. The next upside objective is 81.91. The next area of resistance is around 81.36 and 81.91, while 1st support hits today at 79.42 and below there at 78.02. COTTON (JUL) 02/22/2018: The cross over and close above the 40-day moving average indicates the longerterm trend has turned up. Positive momentum studies in the neutral zone will tend to reinforce higher price action. The market's short-term trend is positive on the close above the 9-day moving average. With the close over the 1st swing resistance number, the market is in a moderately positive position. The next upside target is 82.36. The next area of resistance is around 81.91 and 82.36, while 1st support hits today at 80.29 and below there at 79.11. DAILY SUGAR COMMENTARY Oversold but supply fundamentals remain in bear camp Sugar prices have seen 3 of their 4 lowest closes this year during the past 3 sessions, yet still have been able to hold their ground above the January 19th low. With energy prices losing stream after the US weekly stocks window, however, sugar may be in danger of a downside breakout move. The Brazilian currency continues to lose ground this week, which has pressured sugar as it encourages Center-South mills to produce sugar over ethanol. Brazilian domestic ethanol prices remain strong, but that appears to have led to a surge in imports as US ethanol remains price-competitive even with a 20% import duty. After several days of dry weather, cane growing areas in Brazil's Sao Paolo state will have daily rainfall for most of next week which will benefit their upcoming crop. Commerzbank trimmed back their price outlook for sugar prices to 14.50 over the June-September timeframe, as they are expecting global production surpluses for the 2017/18 season and 2018/19 seasons. Other traders continue to adjust India production higher and see an India production surplus approaching 3 million tonnes. With a sizable net spec short position, sugar could still produce a technical recovery bounce at any time but the fundamentals still look a bearish. However, the general outlook for commodity markets continues to improve and may support. A bearish global supply outlook continues to weigh heavily on sugar prices, and a move below the mid-january low is likely to be followed quickly by a sizable downside washout. May sugar will find near-term resistance at 13.49 and 13.59 while critical close-in support at 13.17 and then 12.85 as next swing target.
SUGAR TECHNICAL OUTLOOK: SUGAR (MAY) 02/22/2018: Momentum studies are still bearish but are now at oversold levels and will tend to support reversal action if it occurs. The close below the 9-day moving average is a negative short-term indicator for trend. It is a slightly negative indicator that the close was lower than the pivot swing number. The next downside objective is 13.12. The next area of resistance is around 13.35 and 13.44, while 1st support hits today at 13.19 and below there at 13.12. OJ TECHNICAL OUTLOOK: ORANGE JUICE (MAY) 02/22/2018: The major trend has turned down with the cross over back below the 40-day moving average. Momentum studies trending lower at mid-range should accelerate a move lower if support levels are taken out. A negative signal for trend short-term was given on a close under the 9-bar moving average. The swing indicator gave a moderately negative reading with the close below the 1st support number. The next downside objective is 137.75. The next area of resistance is around 144.15 and 146.20, while 1st support hits today at 139.95 and below there at 137.75. DAILY TECHNICAL STATISTICS 14 DAY SLOW STOCH D 14 DAY SLOW STOCH K 9 DAY 14 DAY 4 DAY 9 DAY 18 DAY 45 DAY 60 DAY CLOSE RSI RSI M AVG M AVG M AVG M AVG M AVG SOFTS MARKETS COMPLEX SBAK8 13.27 37.78 39.35 25.34 16.16 13.34 13.43 13.57 13.99 14.12 CTAK8 80.39 66.97 60.09 23.69 43.52 78.32 77.81 78.20 79.11 77.75 CTAN8 81.10 67.02 60.51 24.35 44.32 79.17 78.74 79.06 79.66 78.24 CCAK8 2173 74.87 69.61 83.39 90.67 2147.25 2092.89 2062.78 1979.07 1977.72 OJAK8 142.05 33.49 39.42 51.07 41.82 146.45 147.28 147.90 143.41 147.01 KCAK8 118.90 27.48 33.86 27.01 14.35 120.80 122.84 123.79 125.15 125.78 MAH8 14.24 75.03 66.82 78.03 82.67 14.15 13.89 13.74 13.64 13.86 Calculations based on previous session. Data collected 02/21/2018 Data sources can & do produce bad ticks. Verify before use. DAILY SWING STATISTICS Contract Support 2 Support 1 Pivot Resist 1 Resist 2 SOFTS MARKETS COMPLEX SBAK8 Sugar 13.12 13.19 13.28 13.35 13.44 CTAK8 Cotton 78.01 79.41 79.96 81.36 81.91 CTAN8 Cotton 79.10 80.28 80.73 81.91 82.36 CCAK8 Cocoa 2110 2147 2161 2198 2212 OJAK8 Orange Juice 137.70 139.90 141.95 144.15 146.20 KCAK8 Coffee 117.77 118.20 119.17 119.60 120.57 MAH8 Milk 14.02 14.11 14.27 14.36 14.52 Calculations based on previous session. Data collected 02/21/2018 Data sources can & do produce bad ticks. Verify before use. This report includes information from sources believed to be reliable and accurate as of the date of this publication, but no independent verification has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. Any information or recommendation contained herein: (i) is not based on, or tailored to, the commodity interest or cash market positions or other circumstances or characterizations of particular investors or traders; (ii) is not customized or personalized for any such investor or trader; and (iii) does not take into consideration, among other things, risk tolerance, net worth, or available risk capital. Any use or reliance upon the information or recommendations is at the sole discretion and election of the subscriber. The risk of loss in trading futures contracts or
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