The Softs Review
For the week of November 14, 2011

By Jurgens H. Bauer

As traders saw last week, the news stories out of Europe seem to move all markets. Same is true among the softs, but most members of the complex seem unprepared to rally on anything more than short covering at this time. As a result look for a similar week with a downside bias. Cotton and coffee options expired on Friday, with no major surprises. We often see coffee prices drop after such an expiration, so even with some bottom pickers gaining confidence, don't rule out a severe drop, especially if helped by outside market forces.

Sugar values have a mixed tone and now there are concerns about production slow downs occurring which may have a supportive effect. The world still faces a projected surplus so the down trend may resume, but not likely with the vigor traders have seen.

Cotton may have received a short lived perk up as the week approached its end, but fundamentals are still negative and as a result the trend should be lower. Use rally efforts to establish short positions.

Cocoa is the biggest dog among the softs and while I understand the sensitivity there to the British Pound, supplies are more than adequate and therefore likely to continue to drag values down, so selling any temporary strength seems in play.

The big issue right now is liquidity and as long as it remains lower than normal expect volatility to remain high and for prices to move around quickly based solely upon the flow of orders. Good trading, but caution is advised. Keep positions small.

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.