Soft Commodity Update: Coffee Bears Roar!
After a fairly boring Summer session, trading in soft commodities is starting to pick up.
In fact, softs saw a big increase in volatility last week as investors started factoring in quickly changing supply/demand fundamentals.
Here’s a rundown of last week’s soft asset movers…
Coffee
The savory caffeinated bean sank to a four and a half year low near $1.08 a pound in recent trading. As you may remember from previous articles, the coffee market is stuck in a brutal downtrend that started in 2011.
Here’s another look…
As you can see, it’s been a treacherous ride for coffee over the past few years. But believe it or not, the downward slide in prices is actually accelerating.
Coffee slid 4.8% last week to $1.09 a pound!
Why the steep decline?
Investors are realizing there’s no end in sight to the ongoing global coffee glut.
Even though the Brazilian government is pledging to buy 3 million bags off the market in an attempt to prop up prices, bears are still in firm control.
Cotton
As you may remember, cotton started out 2013 with a bang as it surged to $0.94 a pound. Rumors of increasing US exports to China, along with a big decrease in US planted acreage, had bulls in control this past Spring.
My how things have changed…
Cotton was the worst performing asset in the entire commodity complex last week, sinking a hefty 5.1%.
At $0.78 a pound, cotton is currently trading near 9-month lows. It turns out China has likely already imported all the cotton it needs for the year. As a result, US exports of the commodity are expected to be weak for the remainder of 2013.
Sugar
This sweet commodity had an amazing turn of fortune over the past few months.
Once investors realized the US Government was making good on its promise to take supply off the market, they quickly sent sugar to multi-month highs.
And listen to this…
The price of sugar received another jolt last week when word spread that a fire destroyed nearly 180,000 metric tons of sugar at a Brazilian port. The sweet commodity jumped to 11-month highs at $0.20 a pound on the news.
As you may know, Brazil is the world’s largest sugar producer. And with a major port offline for clean up and repairs, sugar could add to recent gains.
Cocoa
The South African commodity has been in a strong uptrend since early July thanks to increasingly bullish fundamentals. According to the International Cocoa Organization (ICCO), cocoa demand is expected to drastically increase in coming years as Western economies strengthen.
Yet at the same time, supplies from South African countries aren’t expected to rise along with the increasing demand. As a matter of fact, the ICCO is predicting a global production deficit for the next five growing seasons.
At $2,700 a ton, cocoa is currently breaking to new 52-week highs and will likely add to those gains in coming months.
As you can see, these markets were all over the map last week…
Keep an eye on soft commodities as Winter arrives here in the Northern Hemisphere. Supply/demand fundamentals are always in flux, but as seasons change, it’s all the more important to keep tabs on new developments.
Stay tuned to Commodity Trading Research for continued coverage of all the commodity complexes!
Until Next Time,
Justin Bennett
Category: Softs
