The Softs Review
For the week of October 17, 2011
By Jurgens H. Bauer

This was my second weekend in a row with lots of driving, this time to Baltimore and back, and my granddaughter's birthday was great! Elsie Jane is 1 year old! Great party, wonderful food, all in all a special time. Speaking of driving, what is driving the markets? Weakness in the US dollar seems the best response to give for this past week, as several soft markets performed what began as short covering corrections well enough, to give rise to work at turning trends around. Coffee heads that list, with cocoa and sugar right behind. And even Cotton didn't fall apart after receiving a negative crop report, but it still doesn't look to have the positive potential seen elsewhere in the soft complex. For the week ahead it will be important to see a follow through and higher prices. It also will be important to withstand any bearish efforts to press values.

Granted much traction was gained from a weaker dollar, but is the Euro out of the woods? While America sure has its share of problems, it has been Europe where the sovereign debt issue got its start. Crude oil prices have a decidedly positive look and that market often leads. Stock prices too appear prepared to advance. With both of those important outside markets setting a positive tone I tend to lean likewise towards the soft markets. If KCZ manages to travel above 246, 250 and 260 become valid targets. Sugar and Cocoa are also showing signs of positive appeal, both also may be correcting from their oversold conditions, yet finding encouragement as they too have staged advances. CCZ needs to show itself able to rise over 2700, while SBH will have to weather any setback although given the action last week the trend looks up. Cotton looks locked in a range, although even there traders saw a market able to recover after a bearish crop report.

So for the week ahead it will be a matter of continuing to make progress price wise for the soft complex. Will outside markets continue to offer help? Can prices withstand some set backs? I cannot say I am confident that they will, but they sure performed well enough last week to have a positive feel for a change. The big question is can they continue? I still can't believe that another shoe isn't about to drop on the world stage, so I remain skeptical. In sum, the positive tone that is trying to emerge needs to show it is able to continue, otherwise selling is apt to return and drive values lower.  Bottom line I am a skeptic and may look at selling.

***chart courtesy

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Past performance is not necessarily indicative of future results.

The Grains Review
For the week of October 17, 2011
By Matthew Pierce

Coming back from the weekend there is little general excitement in the trade and the world. There is yet a solution to the EU debt situation but the G20 conference gave them a week to get their ship in order. We will see how that goes with Merkel. The Euro is lower this morning but nothing dramatic with crude offering limited momentum to the trade. The fundamental side remains quiet as harvest rolls along. Demand for beans remains strong offering a reason to hold longs on any pullback today. Driving to the Grand University of Illinois this weekend I saw field work all along I-57. There are only a few visible bean fields remaining while corn still stands as far as the eye can see. This is a reason to note the recent moves in meal spreads. With bean crushing resulting in meal closer to 44% protein than 48% protein there is a problem. The very late move in SMV-SMZ could be indicative of a future move in SMZ-SMH. The current 4-5-dollar carry is about 60% of full carry calculated at 7.35. The limited risk of this position versus the unlimited potential of a bull spread squeeze is enticing. Demand for meal is obvious following the recent USDA meat export numbers showing a major increase in both Chicken and Pork while beef suffered. The increases in Chicken and pork specifically to China is also notable showing an almost 50% increase month on month. This poses an interesting dilemma for feeders. Do they jump right back in with both feet following the recent drop in price looking for the trend in Chinese demand to remain? On the production side Ukraine cut their winter wheat acreage by 1 million hectares but increased their exportable surplus to 23-24 MMT. This hit both milling and feed wheat cash values in Europe and western Asia. Shifting to S. America, Argentina has seen needed rains recently but is still looking for long term losses in wheat currently estimated at 11-12 MMT. This is the only real bullish production forecast following recent rains in Australia. To prove world values are cheap, Iraq bought 350 TMT world wheat skipping the US on everything.

The overnight session was mixed with an upside attempt by corn thwarted by a slightly stronger USD and Dalian markets trading lower. The lack of fresh demand data also tempers corn during harvest. Talk of agribusiness cuts going in front of Congress is worth watching with nothing specific concerning an attack on Ethanol seen. The sad fact is people are losing faith in the USDA due to questionable data.  In response the Senate is recommending a 5% cut in funding for NASS and a 25% cut for Census. That will only help calm markets, good job boys.
Heading into the day session there is little fresh to spark the next leg higher. I think it will be a week for spreads more than flat price. The meal spread situation is worth watching.
All in all this week will start off quietly waiting for information from Europe, CPI and PPI, export demand and international weather. Macros are a major factor right now so continue to watch the Euro versus corn correlation. If the Euro rises, so does corn, it’s a tight one right now, take a look and compare.

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.