Softs Review on Feb 10th 2011
The new high price of 254.05 was established on what was thought to have been buying by funds in NY coffee. This lifted coffee prices as KCH heads into option expiration today and while prices have eased a bit this morning, the potential for fireworks remains. I am standing aside till Monday. Cotton and Sugar remain quite volatile, even in lieu of recent rule changes by ICE made in an effort to tone down the severe price action. Once you've opened Pandora's box...
At first on Wednesday Cotton prices responded in a sideways to lower fashion once the USDA crop numbers were reported. As the day wore on however, cotton prices jumped, resulting in new contract highs among several months. This morning cotton prices are adding to those gains and my earlier prediction that cotton values will seek $2.00 is now just around the corner. Friday brings option expiration for March. What has been most interesting to see has been the strength shown by next year's crop.
Coffee option expiration will dominate action today. Will we see the 245 strike visited? The 255 strike perhaps? Or maybe, just maybe the 260? Or will things settle down right in the middle at 250? Regardless, be ready for some fireworks. Personally, I suspect to see a shot at the 245, but who knows? Anything can happen and often does. Or will it be 260? Stay tuned.
Sugar prices move around every day in wild fashion. I cannot make sense of some of these moves and attribute them to computers trading on their own. I think ultimately the fundamentals will take hold, but for now, look for more wild days ahead.
I favor the long side of Cocoa, as I do all the soft markets. Holding long July call spreads and will seek to add on dips. Looking for a close over 3300 to stimulate things, but the upside won't heat up until either fresh news comes out of Ivory coast, or technically, we close above 3335 in CCH.
Jurgens H. Bauer, Softs Guru