Wt Softs Discussion Threads

[5benny] 22/8/2008 08:17

Why August is a good month to buy coffee.From MoneyWeek 20.08.08

You know me. I like a chart. There are, no doubt, coffee market analysts noting their findings on the black bean with great care, diligence and detail, but none, to my knowledge, write what you might call 'page-turning prose'. A chart can tell you all you need to know. What it cost, what it costs now and what it's likely to cost.

Below is a long-term chart of coffee. You can see it's been in a nicely ascending pattern since 2000, but, if its highs of the 1990s are to be re-tested, it's got a long way to go. What's more, it's trading towards the lower end of the current range.



Next we zoom in and note what has been a rewarding and remarkably consistent annual trade. Buy coffee in August then sell some five to nine months later, depending on when you meet your targets.



The strategy worked least well in 2005 and 2006. Nevertheless, 03/04 saw a comfortable 30% gain, 04/05 almost 100%, 05/06 25%, 06/07 30%, and 07/08 some 55%. If you play for a 25% gain, recent history suggests you'll make it. If you make 25% and don't want to risk missing out on further gains, simply move a stop up and let your profits run.

Cotton also follows a similar pattern

I wrote last week and the week before how August is a good month to buy gold. The same not only goes for coffee, but also cotton – though to a lesser degree. I'm more of a fan of cotton than coffee (it having been about my person almost every day of my life) but it isn't as straightforward to trade, though it does map out a similar annual pattern. Let's start with a long-term chart.



We see the same story as coffee: a nice uptrend that has been in place since 2001, but we are still a way off the highs of the 1990s.

Then we move in with our arrows and mark the August entry.



The same strategy works for cotton, but not nearly so well and there's a lot more (for some) heart-wrenching volatility en route.

For those who want to buy coffee or cotton, there are the futures markets, various exchange-traded funds ETFs ( and, if the action in precious metals over the past month isn't warning enough for you of the dangers of margin, you can always spreadbet. Of course, do bear in mind that you can lose far more than your original stake.

PS.Shouldn't the header read,Sugar....Coffee....Cotton and not Corn?

[watwungyi] 09/7/2008 00:01

i trade margin etfs at igmarkets. has anyone any recommendation? it would be much appreciated.

[abundance99] 07/7/2008 20:10

Just noticed that the price movement recently looks very similar to the movement between mid-December and mid-January - just before that big spike up!

[abundance99] 16/6/2008 14:47

Got back in on Friday at 5.83. Action today making me surer that this has bottomed. Looking for at least a return to longer-term trend around 6.5.

[sheeneqa] 16/4/2008 12:02

Hi Jock, this is his website, you might find something there or on the other.


or

[5benny] 14/4/2008 17:48

Yes thanks also sheeneqa-very bullish on all commodities i'm glad i switched out of stocks into commodities last Nov.
Slightly off thread has anyone read 'Oil Apocalypse' by Vernon Coleman-very scarey.

[jockthescot] 14/4/2008 17:02

Thanks Sheeneqa - Is there a transcript of this - I don't have speakers!

Jock

[sheeneqa] 25/3/2008 16:12

The Commodity Bull Market Is Alive and Well
by Sally Limantour

As most of you know, commodities went through an overdue correction last week. This shouldn't have been a big deal.

Here's the problem, though: As a result of that correction, some folks are making assumptions that don't make sense. In fact, some of these assumptions are downright dangerous.

For example, the media and others are giving Fed Chairman Bernanke credit for "putting an end to commodity inflation" with his brilliant strategies.

On March 21, Bloomberg stated that "the biggest commodity collapse in at least five decades may signal Federal reserve Chairman Ben Bernanke has revived confidence in financial firms."

Or how about this: Ron Goodis, a trader with the Equidex Brokerage group, tells us that "Bernanke took care of the commodity bubble."

This is faulty thinking. To imagine that Bernanke deserves credit as the commodity dragon slayer, even as he lowers interest rates and continues to stoke inflation, is mind-boggling.




Sources of the Sell-off

So what exactly caused the vicious sell-off in commodities? When all was said and done, by last Thursday's close, gold had its biggest weekly loss since August 1990. Oil had plunged almost $10 over three days. The corn market was off by 9%.

There were a number of things that contributed to the sell-off.

First, the commodity markets had gotten ahead of themselves and were in a classic "overbought" situation.

Second, derivative trading losses and shrinking credit lines were forcing hedge funds to liquidate their winning trades, many of them in commodities, in order to free up capital.

There was also fear that the CFTC (Commodity Futures Trading Commission) was on the verge of raising margin requirements for commodity positions. This is what happened at the end of the last big commodity bull market, when the Hunt brothers were forced to liquidate their silver positions. (I was on the trading floor at the time... It wasn't pretty.)

Furthermore, the dollar was oversold and ready for a bounce. All these factors combined to create a swift break, which has now taken many commodities back to more attractive buying levels.

Facing the Facts

To say the commodity bull market is over is just, well, a bunch of bull. Let's take a look at the facts.

Energy prices, precious metals, agriculture prices, and other commodities have been in a bull market since 2000. The weighted UBS Bloomberg Constant Maturity Commodity Index of 26 futures contracts has gained more than 20% every year since 2001. The index is already up 10% this year.

The big picture has not changed. We still have central banks pumping money like mad into the global financial system. This is obviously long-term inflationary. Helicopter Ben is not going away. Nor is his one-trick strategy to save the world -- running a printing press. This strongly long-term bullish for gold and silver.

In regard to agricultural commodities, the 2008 crops are not even in the ground. Demand issues are pressing and widespread. There are still record-high rice prices (a global food staple) in Asia. Egypt is in the midst of a serious "bread crisis" for lack of grain. An outbreak of "sharp eyespot disease," or SED, now threatens 4.83 million hectares of wheat in major producing areas throughout China. Water is increasingly scarce.

In regard to energy, no major new finds have been tapped in recent memory, North American natural gas demand is set to outpace supply over time, and the global supply-demand situation is still supportive of high oil prices. (That said, crude oil's parabolic move from $85 has been enormous, and a trading range may be in order for crude.)

Three Billion Strong

In the macro picture, we still have the incredible growth stories of China, India, Brazil and Russia underway -- not to mention many other fast-growing countries that get less attention in the headlines.

While there is talk of "recoupling" (the tongue-in-cheek opposite of decoupling), it is hard to argue with the fact that 5.6 billion people currently consume just one-third of the world's raw materials. That 5.6 billion grows more successful, and more hungry, every day.

As my friend Clyde Harrison says, "The industrial revolution involved 300 million people. The emerging nation revolution involves 3 billion."

When discussing the general supply-demand imbalance for commodities, I am referring to a very, very big trend. In fact, we now have two "megatrends" that are colliding. Thirty years of restrained and neglected natural resource supply are coming face to face with 3 billion people intent on discovering capitalism. Irresistible force meets immovable object? We haven't seen anything yet.

Reversing the Reversal

Monday's trading action in commodities saw a "reversal of the reversal," with solid moves higher in many different areas. Here are just a few examples of Monday's crazy moves:


Soybeans +4.14%
Wheat + 3.6%
Silver + 1.5%
Copper +1.3%

The commodity bull market is alive and well. Last week's correction let some much-needed air out of the balloon, that's all.

It would be healthy at this point to see some consolidation, but we might not get it. Already it looks like commodities could be off to the races once again.

[abundance99] 20/3/2008 14:12

AIGS now back to the longer term trend line. It could fall a bit below but anywhere south of here and I will be tempted to buy more. Sugar, cotton and coffee have had less of a run than the grains and it has now all been wiped out. Supply and demand still make these attractive over the medium to longer term.

[rob1977] 17/3/2008 16:23

Me too! I kicked myself for not buying at the start of the year but bought in just now.

[jockthescot] 17/3/2008 16:01

Hmmm - I was looking for an entry point!

Market carnage all around.

[jockthescot] 07/3/2008 14:25

Anyone got any idea why this spiked down suddenly to below 4p today? I haven't got this on a Spread Bet, but does anyone and if so were they stopped out?
Bit of a ball breaker if you were!

Jock

[huntie2] 28/2/2008 21:00

havesold half my AGGP and added to my AIGS. Hope I've done the right thing!

[jockthescot] 27/2/2008 11:39

Still flying - I bought in a week ago or so.
Think the main driver of this is Sugar at the moment. Should be interesting once Coffee finally takes off.

Jock

[mark93] 13/2/2008 23:05

mentioned in moneyweek as a buy. also look's like a brakeout. could be a good buying op. also grains have been going down.

[jockthescot] 24/4/2007 15:18

Think you're right, I'm just comparing pro's and con's.
Not many parties interested in this given the lack of trades/chat.....all the more reason to get involved now I reckon.

[isa23] 23/4/2007 16:28

The 2 issues you mentioned are not that important to me. I think the gains in the long term will more than offset such issues

[jockthescot] 20/4/2007 22:48

Thanks for replying ISA,

Did you give any consideration to the 2 issues I mention above?
Just wondering. I am very keen to invest in Sugar, Coffee and Corn in particular, and would normally leap at an opportunity like this but just feel that these 2 reasons might reduce the returns significantly enough for me to hold back.
That said, I still think it's worth it!

Jock

[isa23] 20/4/2007 15:55

I am also a holder. Agricultural commodities are quite volatile & are direcltly linked to weather predictions, but a small % will help diversify & increased consumption of Coffee, sugar by China etc should bode well.

[jockthescot] 17/4/2007 12:27

Anyone invested here -
Am worried about the "contango" effect with investing in this form of ETC. Also the currency risk. $ quoted.

Anyone taken a position here - would be interested to know your thoughts.

Cheers

Jock

[sheeneqa] 16/1/2007 20:30

Wealth/Investments
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Why Soft Commodities = Hard Profits This Year


Diversification within the commodities complex is paying off this month, despite a very bad start for most raw materials in 2007.

Energy, the precious metals, and the base metals are getting slammed this month. That's the bad news. But the good news is that the soft agricultural commodities are soaring, especially the grains.

With the energy complex getting blasted right now, the grains are surging as corn, soybeans, and wheat hit 52-week highs. Though most commodities tend to rally or decline in unison, that's not always the case in a bull market. Divergence has occurred in January as most raw materials are suffering another brutal correction in their multi-year bull market. But not the grains.

Since last September, the grains have embarked on a major trend reversal after several years of flat-to-negative performance. Like other commodities, trends are primarily driven by supply and demand. In this case, demand is booming for corn because of the bull market in renewable energy (ethanol). Some of the worst corn harvests on record in China and Australia have also boosted demand.

Wheat, also on a tear, is suffering from plunging inventories because of record-low yields and rising demand from Asia. Other softs like cocoa, orange juice, and coffee are also on the move. Since 2002, the base metals, precious metals, and energy have gone to Mars. But the soft commodities have done nothing. That's now changing.

One of the most compelling investment ideas going forward lies in the growing consumption of foodstuffs for biofuel production and human ingestion.

There's no doubt that higher oil prices this decade will continue to encourage governments and companies alike to develop cleaner and cheaper sources of fuel, including ethanol and other biofuels. Plus, rising wealth accumulation in the emerging markets means countries like China will import more grains to feed their livestock as diets change. Combined with erratic weather patterns, I think there's a very good chance we'll see a boom in grain prices and other soft commodities, too.

On January 23, I'll recommend the most liquid way to play this exciting trend. You don't need margin or leverage, and it trades daily. If you want to invest in wheat, corn, soybeans and sugar, make sure to get a copy of my Commodity Trend Alert, now in its 6th year.

ERIC ROSEMAN, Investment Director

[sheeneqa] 27/12/2006 13:06

HOUSTON (ICIS news)--The US sweetener market is being rocked by demands of up to 30% price hikes for 2007 supply contracts from corn wet-millers due to the strength of the ethanol market, sources said on Tuesday.

Several corn derivative sweetener segments, such sugar alcohols, were being affected by the pull from ethanol, the sources said.

Sugar alcohol producers said corn wet-millers first approached them with price increases of 10-15% for 2007. But as the supply drain from ethanol became clear, the demands were bumped up to 20-30%, according to ethanol producers and sugar alcohol sources.

Most ethanol production in the US is done through dry milling corn, but grind from the wet milling process is sold to producers of sweeteners such as sugar alcohols.

Ethanol producers said rising corn prices have put upward pressure throughout the corn derivatives chain. Corn prices have risen about $1/bushel from 2005, with front-month corn futures on the Chicago Board of Trade closed at $3.60/bushel on Monday.

Only a limited amount of US ethanol production takes place via the corn wet-milling route. The wet corn-grind is sold into downstream production of sweeteners such as sugar alcohols and into wet distiller grains.

Most US ethanol production takes place as dry milling of the corn, producing a dry distiller grain by-product largely sold as animal feed. Both processes make ethanol and sweetener market starch-milk.

US corn wet-millers include Archer Daniels Midland, Grain Processing, A.E. Staley, and Roquette.