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Realization that India demand will remain slow and that extra sugar from India backing out of import deals (estimated at near 100,000 tonnes so far) has sparked a very bearish tone to the sugar spot market. Traders are fearful that washouts could increase to near 600,000 tonnes quickly if sugar prices don’t bounce as India buyers pay a stiff penalty and back out of deals. An official with the India Mills Association indicated that sugar supplies in India are comfortable and that the country does not require further imports. Spot prices in India have slipped to the lowest level since October. May sugar pushed sharply lower on the session yesterday and moved to the lowest level since early August. A strong US dollar, weakness in the energy complex and a higher production estimate from India are all factors which helped spark another round of long liquidation selling and the move under last week’s lows attracted additional selling pressure. Pakistan announced a tender to buy 200,000 tonnes of white sugar but this failed to provide much support and the speculator long liquidation selling helped drive the market lower. This selling continued in the overnight hours and May sugar is down as much as 358 points off of Monday’s highs and more than 1000 points (10 cents) off of the February 1st reversal top.
The COT reports on the weekend showed that speculators were still in a long liquidation mode and that speculators still held a massive net long position. Non-commercial traders (funds) still held a net long position of 153,218 contracts as of March 2nd. Russia imports in January came in at 82,600 tonnes from 12,700 tonnes last year as the import tariff is down and could slip further in the months just ahead.

TODAY’S GUIDANCE: Buyers could emerge on the break but for now, minor bearish news is snowballing to major long liquidation selling. A 50% retracement of the entire bull market of 2007 to 2010 comes in at 19.38 and this may now act as short-term resistance with 18.43 as next target.

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May cocoa fell to a fresh 6 1/2 month low yesterday. The market closed at the lowest settlement price since August leaving long-term downside price risk in place. With the fundamental outlook turning increasingly bearish, eventually we see May cocoa falling back towards the $2,600 price level. However, based purely on technical signals, May cocoa may be able to stage a bit of a recovery soon given the market’s extreme oversold condition. We don’t expect this to be much more than a dead cat bounce since a bearish long-term chart formation, a rising supply outlook and lack of investor interest will likely combine to keep the market’s downtrend in tact. May cocoa set a double top at the December and January highs and retracement targets of the contract low (November 2008) to high range are at $2,748 and then $2,567. The odds of the market continuing to trend lower seem to have improved yesterday after the ICCO forecasted a bearish shift in the market’s fundamental setup for next season. The ICCO’s executive director is forecasting a global cocoa surplus of as much as 90,000 tonnes for the 2010/11 season compared to an 18,000 tonne cocoa deficit predicted for 2009/10. The ICCO sees global cocoa output rising by 5% next season and at twice the growth rate of global grindings citing the likelihood that high cocoa prices, which hit a 32 year high in the NY market in January, will promote higher production under normal weather conditions. It is interesting to note that the cocoa market’s dip to a new low for the move yesterday apparently didn’t attract any fresh industry buying. Perhaps after the ICCO predicted a much higher forecast for the Ivory Coast mid-crop of between 310,000 and 320,000 tonnes, chocolate manufacturers may decide to stay on the sidelines in anticipation of lower prices into the April harvest which could leave the cocoa market without a strong price floor. ICE cocoa warehouse stocks stand at 4.540 million bags, down 7,499 bags.

TODAY’S GUIDANCE: The cocoa market remains highly influenced by the currency trade and with the Pound under pressure in the early overnight action it leaves May cocoa at risk of retesting yesterday’s low. Currency influences may need to turn more supportive before any significant technical bounce in cocoa is seen.

TODAY’S MARKET IDEAS: While we see the trend continuing down, traders also need to be mindful that cocoa is overdue for a technical bounce and short position holders may want to have trailing profit stops in place.

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Traders have been focused on the potential for a big crop in Brazil which will help ease tightness in the cash market for the past month but the market may have already “priced in” the large Brazil crop and the focus may shift to spot market tightness ahead of the harvest. Cash premiums remain high for many Central America growths led by Colombia but traders see better production from Colombia for the harvest this fall. The head of the International Coffee Organization believes the world coffee production for the 2009/10 season will reach near 126 million bags which is up from a previous estimate of 124 million. Consumption is thought to be near 134 million bags per year. Therefore, a jump of near 8 million bags for the Brazil crop this season would just help the market avoid a production deficit but will not help build stocks. While we could see a slight world production surplus this season, the surplus should be small and there is still the potential for quality issues due to uneven flowering. May coffee surged higher to break-out to the upside of a 10-session trading range yesterday. The rally also penetrated the downtrend channel resistance and this may have added to the technical buying support. A strong US dollar and weakness in other commodity markets kept the market under pressure early but ideas that it will take more time to see less “tightness” in the short-term supply ahead of the Brazil harvest, and that it will take longer for Colombia to see production back to normal, helped support the solid gains. The Coffee growers federation of Colombia believe Colombia production was just 650,000 bags in February as compared with 868,000 bags last year. Traders believe that March production will be higher than February and that April will be higher than March and so on but the recovery in production is coming slower than expected. This was an annual pace of 7.8 million bags and traders see 2010 production near 11-12 million. On top of an improving chart picture, the steady rise in open interest off of an early March low during a period of base-building is seen as a positive development. Daily ICE certified deliverable coffee stocks were down 23,200 bags to 2.729 million with 3,413 bags pending review.

TODAY’S GUIDANCE: The upside break-out is impressive and the May coffee should find close-in buying support near 132.02 with 136.05 and 138.45 as upside targets.

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The market went into a holding pattern overnight ahead of the USDA’s March supply and demand report, after dropping sharply in pre-report action yesterday. Overnight action consisted of a small bounce that flew in the face of a higher dollar. Some traders are looking for another adjustment upward in US cotton exports today with a commensurate drop in ending stocks, but the slowdown in export sales last week may have reduced the likelihood that another significant adjustment will be made on the March report. Open interest continues to climb with the total up over 23,000 contracts in cotton since mid February as of March 9th. Economic news and sentiment remains on the positive side with China’s announcement that their exports have risen to the highest levels in about three years. This continues the idea that China and much of Asia are in full recovery mode, and some analysts are even expecting an increase in jobs in the US during the month of March. In addition, the EU and Greece appear to be working out the Greek debt crisis. This still leaves a lot of question marks about the EU and about consumer demand in the US, although the S&P has risen back to near its January highs. Investors were sellers yesterday following nearly a week of successively lower highs in the May contract. Traders said that the push below the previous day’s lows generated a wave of selling by commission houses that helped to accelerate the losses as the day session progressed. The United States Trade Representative Ron Kirk said on Tuesday that he hopes the US can negotiate a settlement of the ongoing trade dispute with Brazil over US cotton subsidies. He noted that otherwise this would require negotiations with Congress on program changes in cotton. Deliveries against the March contract as of March 10th were 228 contracts, taking the total for the delivery period to-date to 4,118 contracts. Stocks registered for delivery against the ICE No. 2 cotton contract kept on rising yesterday, hitting 651,055 running bales versus the previous total of 630,905 running bales.

TODAY’S GUIDANCE: The cotton market relieved much of its pent-up selling pressure yesterday, but there is likely to be further selling over the short term barring a bullish surprise on today’s reports or a sharp drop in the dollar. Continue to look for a decline to near 79.00 in the May contract and possibly as low as 77.83. First support is just above 79.70 in the May contract with next support at 80.00 and then at 77.83. First resistance is at 81.82.

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NEAR-TERM MARKET FUNDAMENTALS: May wheat pushed closer to the early February low at 480 3/4 overnight in conjunction with a stronger dollar. This follows last week’s very disappointing export sales total of just 101,600 tonnes. Some traders are concerned that higher wheat prices or a stronger dollar could bring a halt to the recovery in export sales that we have seen in wheat since the start of the year. However, this week’s export inspections, or shipments, in wheat were 20.4 million bushels which was above the high end of the range of trade expectations. Cumulative inspections stand at 77.7% of the USDA’s projection for the 2009/10 marketing year versus a 5-year average of 76.3%. The current inspection total finally pulled ahead of the 5-year average on last week’s report after lagging the 5-year average for much of the marketing year. Inspections need to average 14.5 million bushels each week to reach the USDA’s projection. Wheat opened higher yesterday, but ran into selling pressure just under 500 in the May contract. Rain is expected across most of the soft red winter wheat belt over this week. The heaviest amounts are expected across the southern and western portions of the soft red belt with some heavy amounts also possible in the east central Plains. Amounts forecast for the north central Midwest have been increased slightly into Thursday.

TODAY’S GUIDANCE: A minor downtrend has developed in wheat over the past week. The fact that this is happening so close to the early February low at 480 3/4 in the May contract may embolden funds and other specs to become more aggressive on the sell side. However, changes on the supply/demand report or a turn lower in the dollar would likely bring a wave of short covering. Remain on the short side in wheat, but be quick to take profits near the February lows. First support in the May contract is at 472 with first resistance now down a bit to near 504 1/2 to 505 3/4.

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NEAR-TERM MARKET FUNDAMENTALS: After finishing last week on a down note, corn pushed below Friday’s low in the May contract yesterday and then took out Monday’s low overnight. The latest round of selling came in conjunction with a lower dollar, but funds were on the sell side yesterday and this is raising concerns that trend-following funds might resume their long term push to the short side. This week’s export inspections were in line with trade expectations at 34.0 million bushels. Cumulative export inspections stand at 42.1% of the USDA’s export projection for 2009/10, still well below the 5-year average of 49.1%. Inspections need to average 44.8 million bushels each week to reach the USDA’s projection. The pace of export sales has crept a bit closer to its 5-year average in recent weeks than is the case with inspections, but recent sales to important East Asian customers such as South Korea have been for delivery in mid summer or later which suggests that they may be decently covered through late into the current marketing year. This adds to the possibility that sales and inspections will continue to lag the 5-year pace in coming weeks and that the USDA may again need to lower its export projection. In recent sales to Japan, higher freight rates pushed the sales to the US as the freight cost from South America approached $20/tonnes from a more normal freight of near $10/tonne. Brazil’s crop supply agency, Conab, raised its 2009/10 corn crop slightly to 51.38 million tonnes from 51.36 in February. Weather forecasts in the US call for rain in the Midwest and South through the end of the week. Heavier amounts are still called for across the mid-South and Deep South, especially on Thursday, but amounts for the Upper Midwest have been increased somewhat near the end of the week. This comes as snow melt has soil moisture levels at fairly high levels in many areas. After two straight very wet spring planting seasons, traders are thought to be nervous about the potential for localized flooding and planting delays in corn again this year.

TODAY’S GUIDANCE: Traders see ending stocks near unchanged for tomorrow morning but this forecast includes weaker demand numbers (especially export) and a lower production forecast by about 35 million bushels. If the “re-survey” shows production unchanged, the market is vulnerable to some bearish surprise for the report. Given the lagging pace of export sales and shipments, corn remains vulnerable to selling pressure whenever the dollar rallies. That is the case this morning and old crop contracts appear headed for a test of the 360 level, just above the early February lows. The December contract may find better support due to the wet spring weather and it could hold above its February lows. May corn support comes in at 365 and 359. December corn support is near 395 1/2.

TODAY’S MARKET IDEAS: Erosion is hard to stop in the corn market after it starts gaining momentum, and that appears to be where we are at right now. Hold off on buying, and look for continued erosion in call premiums in old crop contracts.

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NEAR-TERM MARKET FUNDAMENTALS: Good weather for harvest in South America, speculative long liquidation selling and forecast for a hefty supply ahead has helped to pressure the market. Brazil supply officials from Conab pegged the Brazil soybean crop at a new record high 67.57 million tonnes this morning, up more than 10 million tonnes from last year and up from the latest USDA forecast of 66 million tonnes. Traders indicate that El Nino has caused palm production in Malaysia to be negatively impacted and that dry weather into the second quarter could also cause disruption in production. February production was thought to be down near 6% from last year. Big meal deliveries and talk of slow export demand helped to pressure the meal market overnight. Meal exports from India in February were just 218,748 tonnes, down 42.6% from last year and this pushed cumulative exports for the first five months of the marketing year to 1.3 million tonnes, down 43.4% from last year. The soybean complex started the week on a positive note with all three markets trading mostly higher throughout the day. Weekly soybean export inspections, however, were below trade expectations at just 30.9 million bushels. Cumulative inspections stand at 81.3% of the USDA’s export projection for 2009/10 versus a 5-year average of 69.1%. Still, inspections need to average just 10.1 million bushels each week to reach the USDA’s projection. Traders see higher crush and export numbers for Wednesday morning’s USDA update. Traders are looking for the USDA to lower its estimate of 2009/10 ending stocks to near 195 million bushels. Ending stocks were lowered to 210 million bushels in February from 245 the prior month. Argentina and Brazil are experiencing mostly dry conditions with scattered rains forecast into this week in southern growing areas of Argentina and in northern growing areas of Brazil. The rains in Brazil are expected to be light enough to cause only minimal harvest delays with about 1/3rd of the crop there already harvested.

TODAY’S GUIDANCE: The technical picture remains weak for meal and soybeans with the break under the February low for May meal leaving 250.80 as next downside objective. Selling resistance for July soybeans drops down to 954 3/4 and 962 1/2 with 893 as next objective. Use 881 3/4 as next objective for November soybeans with 929 1/4 and 933 1/4 as selling resistance.

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The nearby orange juice contract made another sweeping move to new highs to start the month of March. This is the latest in a series of moves dating back to lows established in mid-February 2009. The reason for this is a powerful one-two punch of increased consumer sales in the US, which shows up the accompanying chart, along with reduced production in Florida after this winter’s freeze. In February, the USDA pegged the Florida crop at 129 million boxes, down 6 million from the previous month. If production is cut another 2-3 million boxes by the USDA this week, it would take production to the lowest level in more than 20 years. The broad turn in demand is just as significant. As of January 23, 2010, sales in US retail outlets were at the highest level since January 20, 2007. This looks like a turn in an 8-10 year downtrend in sales of OJ, which may be based on a very deep shift in eating and health habits among US adults.

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Cotton is finally in the process of making its first correction to the sharp rally that started in early February. The correction started with yesterday’s long, slow retreat from the new high established in the May contract earlier in the session. This retreat accelerated overnight with the May contract losing 2 full cents at one point in the overnight session. This marks the biggest setback since the rally began on February 8th. However, losses in the nearby March contract have been much smaller than in the May contract, which maintains the bull spread tightness that has been a feature of the 2010 rally. The 2-day setback is not likely to be the start of a full reversal of the trend, however, merely a correction. It is also a signal that higher prices will at some point bring a scarcity of buyers, even in the export market where sales cooled to more moderate levels on last week’s Export Sales report reflecting the prices of two weeks ago. Traders will be looking closely at the next report on Thursday to see if sales will dip again and fall below the weekly average needed to reach the USDA’s export projection. That total is currently at 111,100 bales. May cotton made yet another new high for the year yesterday, moving to near 18-month highs in the process. The March contract led deferred contracts higher again yesterday, although it did so by a lesser margin that had been the case in some previous sessions, and this was followed by the setback into the overnight session. Weakness in some economic data related to jobs and housing in recent weeks may now get a closer look from cotton traders, with this Friday’s Unemployment number and Thursday’s Initial Jobless Claims possibly getting more attention from traders. Deliveries against the March contract as of March 2nd were 43 contracts, taking the total for the delivery period to-date to 3,355 contracts. Stocks registered for delivery against the ICE No. 2 cotton contract rose again yesterday to 556,846 running bales from the previous total of 552,817 running bales.

TODAY’S GUIDANCE: The May contract rallied nearly 17 cents without a significant correction over the past 4 weeks and price action over the past 24 hours indicates that the bull market in cotton will not be a complete runaway. The setback may take the May contract back into the range of support at 79.00 to 80.00 or perhaps as low as the January high at 77.83. However, this looks to be a buying opportunity in the May and July contracts with the longer term objective remaining near 90.00 cents in the May contract. First support is at 79.70 to 80.10 in the May contract. Light, near term resistance is at 82.45 to 82.50.

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The market continues to see a massive long liquidation sell-off and pushed to the lowest level since November for the October futures overnight. Open Interest peaked at 897,343 on February 4th and was 756,950 contracts yesterday. The market faces continued extreme tightness in the cash market for the next month or so but traders await a new harvest from Brazil soon. Traders believe the taker of the large deliveries may not have a home for the sugar which just added to the aggressive selling yesterday as a lack of interested new buyers in the cash market recently has been an added negative force. The real key to avoiding another world production deficit for the coming year will be weather for India and China as both regions have seen sub-par crops in the last two years and India saw an especially poor crop last year due to poor monsoons in June and July. The China sugar Association believes this years crop will be near 11 million tonnes from 12.43 million last year. This could leave a significant production deficit. May sugar collapsed to close sharply lower on the session yesterday and moved to the lowest level since early December with fund traders noted as aggressive sellers. Keep in mind; the combined spec net long position (small and large specs combined) as of February 23rd was still 186,603 contracts. This was down 22,219 contracts for the week but this is still a very large net long position. Traders indicate that the slow pace of demand in the past few weeks in the cash market and big deliveries against the March contract helped to pressure. The move under last weeks lows added to the bearish tone and sparked more selling. Deliveries came in at 11,951 contracts as compared with expectations for 5,000-10,000. Exports from Brazil for the month of February reached 979,900 tonnes, down from 1.289 million in January and up slightly from 940,700 tonnes in February of 2009. Ethanol exports were just 21,400 liters from 152,900 liters in January and down from 118,500 liters in February of 2009.

TODAY’S GUIDANCE: The market is still looking for a low enough price to find increased interest is sugar and speculative long liquidation selling could remain active.