The Softs Review
For the week of November 21, 2011

By Jurgens H. Bauer

Defense. And I am not referring to the chant from a football crowd, nor Joe Pa's lawyer, but rather using one word to describe the past week of price movement among the Soft markets. Defense.

Because of changes in delivery standards in the ICE cocoa contract beginning with the March 2012 delivery, which limits the amount of cocoa shells and other debris found in shipments, selling has been more aggressive in the December. This rush to deliver may clean out a lot of surplus, it certainly has pressured values. Can this set the tone for a better market? Too early to tell, but the surplus in available supplies needs to work through the pipeline first. Still too early to predict a pick up in demand, but there is some optimism brewing as Barron's mentioned in an article.

Cotton prices flip flopped, first rallying on a reaction to substantial Chinese buying, shown in solid another improvement in exports. Then dropping limit when enthusiasm disappeared. Managed money appears to have been a buyer early in the week, increasing long positions, but the COT numbers do not reflect changes after the weakness and ultimate drop of over 400 points for the week. Even with China buying, mill demand in the world is expected to remain poor, so prices ought to reflect that with little ability to rally.

Sugar prices remain negative and the March contract should continue to probe below 24 cents. Not looking for a huge drop, as there seems to be some trade scale down buying evident.

As for coffee it is so choppy. There is a historical tendency for prices to drop heading towards December, when prices then begin to rise. I remain a bear for now with the lows not far enough away.

Next up in the Macro horizon look for news on the so called "Supercommittee" (I wonder, do they wear capes?) I'll bet the committee isn't so super after all. Watch as talks stymie and with neither side hopeful that an agreement can be reached before next week’s deadline. Each side has their own special interests at heart, but why not its politics? Problem is what effect will this have on the dollar as we head into the holiday shortened week?

Disclaimer: Past performance is not indicative of future results. Trading futures and options involves substantial risk of loss and is not suitable for all investors. Fundamental factors, seasonal and weather trends, daily news, and other current events may have already been factored into the markets. The use of stop loss or contingent orders may not protect profits and may not limit losses to the amount intended. Certain market conditions make it difficult or impossible to execute such orders.