2008 New Years Report – Agricultural part III (softs/exotics)
When looking at the softs, or exotics, it can’t be said that they’ve had a good year when looking at 2007. For the most parts, 2007 has been steady to downward for the group in general, contrary to the other agricultural products. While grains rally to new heights, the softs just warm the benches, waiting for the coach to call them out to the field. The fundamental attitude has been, for some time now, that there is little in store for the softs, but lately there have been some changes. Strong bearish sentiments have began to diminish and more and more bullish signs are emerging in the softs. The year 2008 could, in general, be very bullish for the soft, or exotic commodities.
Cocoa
Of all the softs in 2007, cocoa was the one to look at. After having been bullish the first six months, cocoa went into a sideways tunnel, ending the year with a gain of around USD 4,000 per contract. The beginning of 2008 indicates that the cocoa bull will continue a bit longer. The sideways trading range in the second half of 2007, was in line with a resistance range, set with the bull run of 2002 – 2003. Cocoa has now broken that long term resistance and is heading towards the top of the 2002 – 2003 run of about USD 2,409 set in the beginning of 2003. This top is the highest price of cocoa since the bull run that ended in January 1984. We can expect cocoa to reach, or at least get quite close to the top of 2003, where it will most likely encounter some resistance. This could actually happen quite soon, even as soon as in February. There are no strong technical indications that cocoa will have an easy time breaking through that resistance, but at the same time it’s difficult to see cocoa falling far below the trading range of late 2007.
Coffee, C
While cocoa showed some good trials in the beginning of 2007, coffee didn’t do so well. Even though the price of coffee showed a modest overall rise in the year 2007, the rise only took part in the later weeks of the year. With the prices falling from January to the later part of May, the rest of the year went into recovering lost ground. When looking at coffee from a long term point of view, the price has been fighting a resistance at around the 120 – 137 cents range since March 2005. There are some indications that this resistance could be broken in the near future, but a firm close above the resistance could easily give a good drive to the upside, with the next possible resistance being around 175 cents. The last bull in coffee was in 1997 and lasted until June the same year, taking the price from around 115 cents to around 318, closing out May around 276 cents. This run, from top too bottom gave around 76,000 USD per contract. The bull of 1997 took the price of coffee to the highest price the last 25 years. Should coffee not be able to break the present resistance level in the near future, we could see a small drop in the price. There are indications that this resistance will be broken, the question is only, will it be in 2008 or 2009.
Cotton #2
The rally in grains and high demand for wheat and soy products the last few years, have hit the cotton quite hard. Increasing number of acreage has moved from cotton to the grains. Synthetic material has also been pushing cotton out of the clothes arena. With higher oil prices increasing the price of synthetic material (being around 95% oil based), cotton is making a comeback in the clothing business. Years of cutbacks in production has also reduced the potential for cotton to supply increasing demand. December 2007 and the beginning of January 2008, has seen a rise in the price, with the high of 2003 now in sight. If the price manages to break through the resistance that held in 2003, the top of 1995 could be in sight for the price of cotton. In 1995, price of cotton went to about 117 cents before dropping back later the same year. The top of 1995 was the highest the price cotton has reached the last 25 years.
Orange Juice (OJ), FC
For OJ, the year 2007 began with the highest prices OJ had seen the last 25 years. The beginning of 2007 also signalled the top of a bull run that began in June 2004. This bull took the price of OJ from around 56 cents to around 209 cents or around USD 23,000 per contract. The year 2007 took the price down to around 118 cents, before heading upward. When looking at the monthly chart, the price of OJ has retraced roughly 50% of the last bull run, so the present reversal could signal higher prices and a possible support for a further bullish price move. From a short term standpoint, prices of OJ should move higher, which could affect the mid to long term prospects. If the bull materialises this year by setting a firm close above 151 cents, a target of around 209 cents could be envisioned, with a possible resistance around 165 and 185 cents.
Sugar #11
In late 2005 and early 2006, sugar had a bullish run from around 9 cents to almost 20 cents. This run came after sugar had been trading in a sideways tunnel from October 2004, following a short run from around 6 cents in January 2004. In February 2006, the bulls lost power and the bears took the price of sugar down to almost 8 cents in June 2007. Since then sugar has been steadily rising until the first weeks in January 2008, when forward months started to break 13 months high prices. At present, sugar has not been able to penetrate a resistance range up to around 12.50 cents, with the March contract not being able to settle above 11.50 cents, until the 16. of January 2008, when sugar settled at 11.77 cents after a very aggressive day adding 30 points to the price from the previous close, but 37 from the days low. Sugar needs to maintain this price level to support the bullish run. Passing the 12 cents mark and setting a firm price above it, sugar will trigger a lot of signals setting the course for a bullish market that could go close to the 2006 high. The 2006 high is the highest price sugar has been to the last 25 years, but in 1974 sugar went from 12 cents to 66 in only 10 months. There is a resistance on the long term chart close to 15 cents and then around the high of 2006. In short, if sugar manages to set a firm close above 12.50 cents, it could be the next big rally in commodities
