The Softs Review
For the week of October 24, 2011

By Jurgens H. Bauer

There are two basic forces at work; the weaker dollar and the poor world economic climate which has raised concern about demand. Add to those the liquidation of fund participation in commodities (although there are some who believe funds are showing signs of attraction to the long side) and you see an environment that has become thin and susceptible to stage swift price moves on reaction to news from the 24 hour news cycle. As a result, look for volatile times this coming week.

Friday's sharply weaker dollar spurred buying on Friday lifting coffee prices sharply. Sugar failed to respond in similar fashion. Cotton firmed on Friday, but was down 5 cents on the week with open Interest rising in cotton by over 2500 contracts, signaling new shorts were the driver behind Thursday sharp price drop. Cocoa languished at week's end after reaching new lows for the season earlier.

As for the surge in coffee, technicians seem focused on a chart pattern referred to as Andrew's Pitchfork, which should Friday's highs (247) get taken out decisively portends a swift move to 265 or 275. A failure should result in a pull back to 230. Volume was superior, validating the move.

Read where one Bank of America analyst thinks that another downgrade of America's debt rating is on the way when the "Supercommittee" blows up in late November or early December. "The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan. Hence, we expect at least one credit downgrade in late November or early December when the super Committee crashes".
Read more here.

The dollar will likely fuel the next big move in the markets, so that should be the focus of attention. Traders continue to anticipate the EU coming to some kind of solution in the debt crisis. However, any final plans are again up in the air as Germany and France are now looking for another meeting on Wednesday, having delayed plans for this past weekend. That leaders are in such disarray and that this weekend's meetings were set back only add to the uncertainty and tension and the potential for calamity. That leaves much hanging upon the result and sets the tone for a sharp reaction to take place in either direction.


***chart courtesy
Gecko Software’s Track n’ Trade Pro
Past performance is not necessarily indicative of future results.



The Grains Review
For the week of October 24, 2011

By Matthew Pierce

Coming back from the weekend we see no “resolution” concerning the EU debt situation but that doesn’t seem to be a bitter pill to swallow. All markets are mixed to modestly higher after Chinese PMI numbers offered support. There is some sentiment that the Chinese contraction pattern has reached its apex offering a positive undertone to Asian markets helping commodities rally back from Friday’s losses. Going back to Friday markets had options expiration that proved that the highest open interest is where it will settle. In corn the market rallied early trading above $6.50 only to run out of steam about midsession when the almost inevitable decline back to $6.50 began. This was the highest open interest by far offering the best amount of action and traders saw just that. In the final minutes of the trade I saw a brief move under $6.50 where it closed the day. Beans could not fall far enough to hit any strike of interest with the $12.00 just too much to lose without reason. Wheat was also stuck between a few low volume strikes with the cereal months there trading sparingly. Spreads were very active with corn spreads favoring the bear side most of the session widening by about 2-cents leaving the day around 10.75. I will look for this trend to continue this week as the trade continues to realize we are not out of corn…not now anyways. SX-F saw a nasty turn wider for those riding the bull wave there. This appears to be a profit taking move but there was no movement overnight with this spread sitting 8.75-9 starting the week. I look for this to tighten again but watch bean basis at the Gulf and along the central US river system for direction. Crush demand should be present due to meal demand with the Meal spreads still working in favor of bulls. SMZ-H closed the overnight at 4.50 showing a small recovery for bulls from Friday’s wider move in sympathy with beans. Look for the bull side to win this week as continued problems exist with protein in early crushed beans. In wheat traders saw a session that followed corn but showed relative strength due to help from KC and Minny due to protein concerns and planting woes. Bull spreads in KC worked well on Friday only to give up overnight…but we shall see. I think any producer that releases old crop stocks following the recent weather shift to desert like conditions on TX and OK should be questioned. Releasing anything before the new tax year is another questionable move but each to their own. There is likely to be a real serious problem with HRW stocks come spring so I will look for bull spreads to lead the way into that timeframe.

Looking at the week ahead, things should start off like a lamb, higher but without conviction ahead of further information out of Europe. Wednesday now appears to be the day to get that input so look for a mundane first half of the week. No major weather situations early in the week with recent rains in Morocco helping stabilize their ground for planting. As we progress look to the S. plains with any abatement in rains there helping both flat price in KC and spreads. Minny bull spreads should start to light up again in November but there is nothing on the demand side to get them moving dramatically this week. Crude is modestly higher with a positive undertone following the Chinese demand sentiment shift so this should help commodity sentiment across the board.

I will look for a higher tone in agriculture with bear spreads winning in corn and CHI wheat, bull spreads winning in beans, meal, KC and to a smaller degree bean oil. Flat price will see a pop back to Friday’s levels with corn needing help to break and sustain for a move to the 100-day MA. Wheat momentum is determined by KC and their weather so look for rainfall totals over KS, TX and OK late this week. Beans will rally early in the week with meal outpacing bean oil as long as crude does not explode. The path of least resistance is to the upside across the commodity sector due to shifting sentiment, not changing reality. There is nothing exciting to start the week so do not get married to early gains. Look for a choppy week with serious swings all over the floor.


***chart courtesy
Gecko Software’s Track n’ Trade Pro
Past performance is not necessarily indicative of future results.


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.