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The coffee market remains firmly entrenched within the recent trading range as prices have found little benefit this morning from a weaker Dollar and early strength in global equities. Improving macro-economic sentiment due to positive developments in the Euro zone has provided limited support for the coffee market but has not been enough for prices to shed their recent negative tone. Many European trade houses are projecting the upcoming Brazilian coffee crop at 55 to 58 million bags, which if accurate could potentially offset supply shortfalls from several major producers this season. With the Lunar New Year holidays concluding, coffee supplies from Vietnam may increase during the next few weeks. There are reports of an outbreak of the “roya” fungus in the Antigua coffee production region of Guatemala. ICE exchange coffee stocks were up 5,802 bags at 1.529 million as of January 26th, with 45,239 pending review.

TODAY’S GUIDANCE: The Dollar and global equity market may not be making strong enough moves for the coffee market to receive significant support this morning. With the shadow of Brazil’s potential “bin-buster” crop hanging over the market this far ahead of harvest, March coffee may need to receive fresh news of supply problems in order to break out above this week’s trading range.

TODAY’S MARKET IDEAS: March coffee resistance will be at 221.90 this morning, with 216.80 as the next support level. A slide below this week’s lows could lead to a retest of the mid-December lows.

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March cocoa continues to build on this month’s sharp rally, with prices rising more than 22% during the past three weeks. In addition to ongoing concern with this season’s cocoa crop in the Ivory Coast, a report that Indonesian cocoa production may decline 10% to 15% from last season’s already below-average levels provided further support for the market as that nation has been a traditional supplier to the US market. Many analysts are forecasting double-digit declines for cocoa production in the Ivory Coast and Ghana this season, due in large part to excessive dry weather over the past few months. The improvement in broad-market sentiment has also helped to underpin cocoa prices at these high levels, although any sort of Euro zone risk flare-up or weak US economic data could erode this support in a hurry. In addition, concerns over global demand have been elevated due to sluggish fourth quarter cocoa grinding data from Europe and North America.

TODAY’S GUIDANCE: With prices rising over $200 during the past four sessions, end-of-week profit-taking could dampen upside momentum later on in the session. The upcoming Commitment of Traders data will reflect any substantial reduction of the non-Commercial net short position during this week’s rally, as fund short-covering has been a major component of this year’s huge rally.

TODAY’S MARKET IDEAS: While this week’s upside breakout to fresh two-month highs should have plenty of technically-based support, prices could be vulnerable to a sharp pullback if outside markets fail to maintain their positive tone.

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The market seems to be in the process of absorbing a rebalancing period for index funds where index buyers could be buying 25,000 contracts of sugar this week. Sellers were hard to find yesterday as other fund traders appeared to also be active buyers with a shift in psychology to a more positive view on commodity markets. March sugar closed sharply higher on the session yesterday and managed to push to the highest level since November 16th. Outside market forces showed nothing but green lights for commodity bulls yesterday and sugar is sensitive to both the dollar and energy markets. The surge up in energy and equity markets and a sharp break in the US dollar helped to support the rally. Buyers were also active with sharply higher trade for metal and grain markets. China economic news was better than expected and this supported the market as well as traders see emerging market growth as a positive demand force. Outside market forces look more neutral for today but index fund buyers may still be active ahead. Commodity Index traders held a net long position of 191,187 contracts in the last COT report. For the two major index funds, traders believe that these funds will be buying near 25,000 contracts in the first week of the year. Traders believe new crop supply from Thailand will be hitting the global market by mid-January and that this could pressure the cash markets.

TODAY’S GUIDANCE: Without help from outside market forces, the sugar market looks vulnerable to a resumption of the downtrend but the buying may continue for at least the rest of the week.

TODAY’S MARKET IDEAS: March sugar resistance comes in at 24.81 with support back at 23.81. Use 22.09 as next target when the market resumes the downtrend.

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The market has seen a very strong recovery bounce into the New Year and it may take a continued strong global economic view ahead in order to rationalize the recent strength. Exports have come in much better than expected in the past few months and there is also increased concern that producers in the US and China will back away from the market and plant less acres for the coming year just as global demand is improving. This would assume that emerging market growth continues on a firm pace and that the European debt situation does not slow global growth prospects. The International Cotton Advisory Committee indicates that China has acquired a total of near 2.1 million tonnes of cotton from producers to replace reserve stocks and also about 1 million tonnes of foreign cotton to add to reserves. Non-China cotton stocks are expected to increase by 26% this season to 8.7 million tonnes, the largest in four years. Global production for the 2011/12 season is expected to reach 26.8 million tonnes, up 8% from last year and that global demand is expected near 23.9 million tonnes, down 2% from last year. The market surged higher yesterday to close 4.4% higher on the day to push to the highest level since November 18th. Traders see short-term support from rebalancing efforts by index funds and from active “across the board” buying of commodity markets yesterday in anticipation of a stronger environment for commodities in 2012. Outside market forces were extremely supportive yesterday and look neutral for today. Global ending stocks look burdensome to start the 2012/13 season and this is expected to cap the market on corrective bounces. Cotton was the worst performing commodity market in 2011 dropping a whopping 36.6% for the year. The USDA attache in India revised their crop production forecast for the 2011/12 season down by 750,000 bales to 34.25 million bales. Commodity Index traders held a net long position of 51,276 contracts in the last COT report. For the two major index funds, traders believe that these funds will be buying near 11,000 contracts in the first week of the year. ICE certified deliverable stocks increased to 39,395 bales from 39,394 bales the previous session but from 49,998 bales last week.

TODAY’S GUIDANCE: Look for technical signs of a near-term top near key resistance for March cotton at the 95.78 to 97.80 zone with support back at 93.60 and 91.42. Index fund buyers may be more active this week before the buying slows.

TODAY’S MARKET IDEAS: Position traders might look to establish bearish put strategies for the first quarter and we would not rule out another leg down longer-term objective.

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Renewed supply concerns with trade house forecasts for a world production surplus of as high as 8 million tonnes plus a more aggressive long liquidation selling trend from speculators into the holiday helped to drive the market sharply lower yesterday. While there was talk of the oversold condition basis traditional technical indicators, the weekend COT report showed that large and small speculators combined were still holding a net long position of 82,559 contracts. Fears of a slowing global economy plus a continued move by fund traders to lighten up on long positions helped to drive the market sharply lower yesterday. There was a noted lack of new buying from commercial traders. March sugar closed sharply lower on the session yesterday and pushed down to the lowest level since June 2nd. News that India will allow the export of 1 million tonnes of white sugar helped to pressure London and the selling overflowed into New York. Outside market forces were not strong enough to offset the long liquidation selling and selling accelerated on the move under Monday’s lows. Brazil rains have slowed old crop production but traders see the rains as beneficial to the 2012/13 production.

TODAY’S GUIDANCE: The downside break-out and lack of commercial support plus further weakness in outside market forces overnight could keep the market on the defensive today.

TODAY’S MARKET IDEAS: March sugar resistance is at 23.86 with 22.36 as next downside objective. There is some chart support at 22.88.

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The cocoa market was finally able to post a positive result yesterday, although there is more than $300 worth of losses to recover from the past two weeks of trading. March cocoa went through a choppy and volatile trading session on Tuesday but was able to make a sizable recovery after posting a new multi-year low. Support from outside markets proved to be a key factor, as the market was able to post a daily gain for the first time since November 7th. While heavy near-term supplies continue to pressure the market, reports of dry weather over Ivory Coast production areas may have triggered the rebound. In addition, short-covering in front of the Thanksgiving holiday may have helped to lift prices further away from the early lows. Cocoa port arrivals in the Ivory Coast have been running well behind last season’s pace but a producer stockpiling program has not been effective in lifting prices out of their recent slide. Other major West African cocoa producing nations such as Ghana and Cameroon are projected to have their second record high cocoa crops in a row.

TODAY’S GUIDANCE: March cocoa is back under pressure this morning, although prices were able to avoid extending the recent selloff down to new low ground. If cocoa’s fundamentals remain negative and outside markets continue to be sluggish, prices are likely to go into tomorrow’s holiday down near multi-year low levels.

TODAY’S MARKET IDEAS: March cocoa close-in resistance is at 2440, with 2380 and then 2355 as the next downside objectives. Given the steep drop in prices since early November, traders should wait for a more extensive bounce before entering the short side of the market.

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There seem to be enough factors to provide solid support for the cotton market over the short term. Ideas that the USDA report next week will show a smaller US cotton crop, a more positive tilt to outside market forces, and concerns about too much rain falling on the soon-to-be-harvested Texas crop are all seen as positive forces. The technical action has also improved this week with the market rejecting the idea of moving to a lower price level and closing near the high end of the recent consolidation. A surge higher in Asia stock markets helped support a move to a new 10-session high for December cotton overnight, and this may attract additional buying support during the session today. Commercial buyers have been active on moves under 100 over the past week. Traders also see the possibility of a lower crop out of Pakistan as well as the US for the USDA report next week. Less anxiety regarding the global economy plus a turn down in the US dollar provided support to a wide range of commodity markets overnight. While several inches of rain may fall on the west Texas crop into the weekend, traders believe it will not be too harmful to the quality of the crop and that if the weather clears soon, the harvest can resume without much in the way of damage. The crop was just 16% harvested as of Sunday, compared to 13% last week and 23% last year.

TODAY’S GUIDANCE: The longer term demand factors are in question, but the market looks poised for a recovery bounce at least into the USDA report next week. Until there is more known about the size of the US crop, the market does not seem to want to move to a lower price level.

TODAY’S MARKET IDEAS: December cotton support comes in at 102.30 and 100.80, with resistance at 104.80 and 106.85.

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The sugar market may find some short term support from a more positive tilt to outside market factors, but with longer term fundamentals negative, we could see a consolidation trade over the near term as the market corrects the recent oversold condition. Commodity markets in general were pricing in the possibility of another recessionary period for the global economy, so any shift to a less negative outlook could have a positive influence on many markets. While some of the technical readings are showing an oversold status, the COT reports have been showing a long liquidation trend with a hefty net long position still held by speculators. March sugar closed slightly higher on the session yesterday but well off of the highs from earlier in the day. An early rally in London sugar stalled, and New York futures drifted lower and closed 69 points off of the early highs. A more positive tilt to energy and equity markets plus a break in the US dollar provided the initial support. The USDA attache in Australia revised their production estimate for the 2011/12 season to 4.15 million tonnes, compared with last year’s production of 3.7 million tonnes. Last year’s production was the lowest since 1991/92, but good weather helped turn that around this year. There could be periods of tightness ahead with the slow production pace out of Brazil and strong demand in Brazil for ethanol. But for now the world supply looks adequate with new production coming on line in Europe, India and Thailand.

TODAY’S GUIDANCE: The fundamental outlook remains negative with a significant production surplus anticipated this for this year. However, the market is oversold after the recent collapse, and traders see some tightness in the cash market and some increased short covering if pressure from outside market forces eases, at least temporarily. The result could be a recovery bounce or just a consolidation phase.

TODAY’S MARKET IDEAS: Light uptrend channel support for March sugar comes in at 24.40 for today and a move under this level turns the pattern negative. Resistance comes in at 25.69 and 26.20. Consider buying a put on a test of 26.20-26.52 resistance zone.

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The cocoa market finally showed some resiliency during the past few sessions, although not enough for prices to rise above the recent trading range. December cocoa was able to recover from early pressure yesterday and finish the session with moderate gains. It has been able to close higher in three out of four sessions this week after only having three positive sessions over the previous three weeks. Still, cocoa has lost more that $400 during the month of September. Positive developments on both sides of the Atlantic were able to lift macroeconomic sentiment and trigger a broad-based recovery in cocoa as well as other commodity markets yesterday. The British Pound’s failure to follow through on early strength may have limited gains in cocoa, as that diminished arbitrage buying of ICE futures against the LIFFE contract. Heavy near term cocoa supplies, due in large part to all-time record crops from top cocoa producers Ivory Coast and Ghana, have helped to keep prices grounded near their lowest levels of the year. While next season’s global cocoa production will roughly balance supply and demand, many traders feel that this season’s global cocoa surplus of more than 400,000 tonnes will have to be digested by the market before prices can lift substantially away from their current low levels.

TODAY’S GUIDANCE: Consolidation is normally a continuation pattern and the market could resume the downtrend at any time. The sideways action is helping to alleviate the oversold condition but we can not rule out a further bounce to resistance at the 2,749-2,782 zone basis December cocoa before a resumption of the downtrend.

TODAY’S MARKET IDEAS: Keep 2,562 as the next target.

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The coffee market has been in a tailspin during the latter part of this week, and prices have now completely given back the entire late August rally. December coffee kept sliding lower during yesterday, with prices reaching their lowest levels since late January. The market failed to find carryover support from a broad-based commodity rally, and a late rebound in the Dollar added to the negative tone. Forecasts for rain showers over Brazilian growing areas were a major factor in coffee’s plunge, as they should bring about the start of the critical flowering period and reinforce market ideas that Brazil’s upcoming coffee crop will match or exceed expectations. The start of the coffee harvest in Vietnam early next month should help to ease that nation’s tight near-term stocks situation. Trade officials in Colombia are still confident their nation will reach a production target of 9 million bags during 2011, in spite of poor weather earlier in the year. ICE exchange coffee stocks were up 1,004 bags to 1.432 million as of September 29th, with no bags pending review.

TODAY’S GUIDANCE: While the market is extremely oversold, the move under the September 23rd lows late yesterday left 224.80 as the next downside target. The bearish supply outlook for the coffee market has clearly overcome recently improving macroeconomic sentiment. The market could consolidate recent gains before it resumes its downtrend.

TODAY’S MARKET IDEAS: Initial resistance for December coffee comes in at 236.80 and 238.65. The steady to higher trend in open interest on the recent downtrend suggests that some fund traders are building up a hefty net short position, so we cannot rule out some increased volatility in both directions just ahead.

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