ICE Softs Fast Facts: The New Year Starts with a Bang

Softs Complex
The Softs Complex was jolted upwards as the dollar weakened and traders zeroed in on weather forecasts for dryness in Brazil. The rallies have started to fizzle already and may not be a brilliant New Year fireworks display but some sparklers that fizzle out fast. My comments from last month still stand about the comfort level for each of the markets and without the benefit of either a true weather scare or significant currency play, the markets are more likely to stay in their comfort zones. In recap:

The coffee market rose and fell coming almost full circle to where it was a year ago. The market briefly fell back into the old familiar stomping ground of $1.20-$1.40 and then found support and climbed above this point. The market may need to test the water further and rest not to from where it is. As noted previously, the market will continue to closely track the Brazilian real/US dollar relationship and will a deciding factor for market action. Fundamentals still lean somewhat bearish due to ongoing large exports, sufficient stocks in consumer hands and bright prospects for 2017-18 production recovery.

World sugar prices finished with an increase in 2016, but certainly well off the highs. World stocks are being reduced for the second consecutive season, but the stock reduction is nowhere near as troublesome as many perceived earlier in 2016. There are still some worries for the balance of this year, but my concern is focused on the consumption side with no strong players needing sugar and that could limit price advances. The sugar market will continue to keep a close watch on energy prices as lower oil leads to higher sugar production in Brazil and greater exports.

The cotton market may be getting ahead of itself if prices continue to rebound. Higher prices were needed to assure that planting decisions include cotton over other crops, but now prices may be too attractive and lead to too much supply in 2017-18 if the weather is favorable for plantings and harvesting. Current prices are already too high and will have a negative impact on demand.

The FCOJ market has finally plunged on the realization that high prices were killing demand and the supply threat for this season is minimized from a lack of cold weather. This coupled with strong imports, have taken the edge off the market. Strong imports have forced prices lower.

The cocoa market remains at low levels relative to the rest of the Softs Complex and would seem to have fundamentals that are not quite as bearish as market action suggested. The tide seems to be turning and this is my favored pick for a market that has room to climb.

Softs: Fast Facts is a monthly update on the soft commodities market sent to you compliments of ICE Futures U.S. The newsletter is provided by J. Ganes Consulting, LLC, and includes Exchange updates. Simply click on the image below to access this month’s issue.

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