Coffee output to dip next season - but not by much

by Agrimoney.com

World coffee production will fall in 2011-12 – but not by much, supported by Brazil, which is expecting a record harvest for what is an off-season in its two-year cycle.

Typically, world output suffers a notable decrease when Brazil, the top producer, enters its off-year, with the decline nearing 9m bags between 2006 and 2007, for example.

However, next season output will fall only some 3m bags from that in 2010-11 thanks to expectations of a bumper off-season crop in Brazil, the International Coffee Organization said.

At 43.5m bags, the Brazilian crop "is the highest ever recorded for an off year", the organization said. Brazilian farmers have attempted to reduce the production cycle through measures such as irrigation, fertilization and pruning.

The ICO's world estimate of a 130m-bag harvest in 2011-12 represents the second-higher output ever, after the current season's production.

Nonetheless, it is likely to fall - again - below consumption, which hit 134.0m bags in 2010 and which the ICO said "continues to grow steadily, despite the firmness in prices".

Better prospects

The organisation added that, besides Brazil, some coffee growing countries are "expecting increased production if climatic conditions remain favourable".

The current elevated coffee prices "will encourage improvements in the upkeep of coffee farms in many other countries despite increased production costs".

However, the ICO also forecast "further falls" in Indonesia's output, which continues to be dogged by the effect prolonged rains which interfered with flowering, besides testing the country's infrastructure. Indeed, Indonesia is widely expected to return to Colombia third place in world coffee producing countries.

Output in second-ranked Vietnam, which produced 18.5m bags in 2010-11, will likely "stagnate" next season, the organisation said.

Discount narrows

The forecast came as the ICO reported a rare fall last month in the physical price of arabica beans. In the case of Brazilian natural beans, the decline was the first in at least a year.

However, robusta beans continued to appreciate, by 3.9%, narrowing their historically large discount to arabicas, which are generally considered of higher quality.

On futures markets, arabica coffee for July delivery added 1.1% 267.95 cents a pound in New York.

London robusta beans, for July, eased 1.3% to $2,431 a tonne.

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Cattle sending a clue to the S&P 500's future direction?

by Kimble Charting Solutions

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Crude Oil is pushing support to its limits ...

by Kimble Charting Solutions

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Ugly Sixes

by Bespoke Investment Group

As we enter another trading week, below are two charts that compare the current S&P 500 six-week losing streak to the sixteen others that have occurred since 1928. As shown in the first chart, the decline of 6.79% over the last six weeks is quite a bit less than the average decline of 10.47% (black line) seen during the prior six-week losing streaks. As shown in the second chart, the S&P barely saw declines in weeks two, three and four of the current losing streak, but the last two weeks have been awful and worse than the average declines in weeks five and six of the prior six-week losing streaks.

As we noted last week, the S&P 500 has only had three 7-week losing streaks in its history. The last 7-weeker occurred back in March 2001, and the index slid 6.72% in week seven during that losing streak.

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Brent-WTI Spread Blows Out to Record Levels

by Bespoke Investment Group

There's been a lot of discussion recently regarding the Brent - WTI crude oil spread. For those unfamiliar with the term, the spread refers to the difference in price between Brent North Sea crude oil and the West Texas Intermediate crude oil futures contracts. While these two contracts have historically closely tracked each other, in recent months the two paths have diverged. As shown in the chart below, beginning in January Brent crude oil has started to become increasingly more expensive relative to WTI crude. In fact, at current levels the spread is now at record levels and over $20 per barrel.

What's behind the large spread in futures contracts that essentially track the same thing? While there does not seem to be one specific reason, some of the more widely circulated explanations for the widened spread are the unrest in the Middle East disrupting supplies in Europe, excess supplies in Cushing, Oklahoma (the delivery point for WTI), and decreased demand in North America while demand in other parts of the world is increasing. While any number of factors are in play with the wider spread, at some point it will become wide enough to make for a very profitable arbitrage.

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The corn and wheat dilemma

by Gary Kamen

Last week July corn opened at 754 and closed the week at 787. July wheat opened last week at 772¾ and closed the week at 759¼. We saw that the WASDE report released this past Thursday was bullish corn and bearish wheat. There is definitely no problem with wheat supplies both worldwide and here in the United States. Here in the United States, supplies are above the 10-year average. Not so for corn. The increased consumption by China is keeping corn prices high. China grows 46% of world stocks and will not be exporting corn. Increased production by China does not come close to their increased consumption.

Last week July corn opened at 754 and closed the week at 787. July wheat opened last week at 772¾ and closed the week at 759¼. We saw that the WASDE report released this past Thursday was bullish corn and bearish wheat. There is definitely no problem with wheat supplies both worldwide and here in the United States. Here in the United States, supplies are above the 10-year average. Not so for corn. The increased consumption by China is keeping corn prices high. China grows 46% of world stocks and will not be exporting corn. Increased production by China does not come close to their increased consumption.
 

COT Data

On the Commercial Tracker below you see that Commercials had a slight drop in net-shorts and an increase in net-longs in wheat. With July corn almost 30 cents higher than wheat, livestock feeders could decide to replace a large portion of corn with wheat to bring down costs, increasing wheat demand and decreasing corn demand. If corn continues moving higher, there is no doubt that is exactly what will happen, so keep an eye on September (old crop) and December (new crop) corn. If we see new crop strongly moving up, you will want to keep an eye on how the feed market responds, especially because meat prices have come down. 

Commodity	12-mo low	12-mo hi	10-Jun	3-Jun
Cattle (feed)	-1,290	7,100	4,683	4,038
Cattle (live)	-73,179	2,046	2,046	-2,028
Hogs	-35,979	19,456	19,456	18,152
Corn	-413,915	119,389	-387,283	-395,045
Oats	-7,738	-867	-4,990	-4,554
Soybeans	-203,260	29,118	-112,280	-100,113
Soybean meal	-90,487	-32,915	-66,035	-47,366
Soybean oil	-117,444	32,394	-87,714	-74,009
Wheat	-32,577	74,161	15,534	3,103
Orange juice	-20,205	-6,588	-20,205	-19,463
Coffee	-47,729	-16,418	-16,418	-20,434
Cocoa	-41,808	8,586	-6,136	-9,605
Sugar	-221,694	-104,595	-123,748	-109,638
Cotton	-69,857	-12,970	-34,758	-36,258
British pound	-66,435	66,514	-7,171	-3,837
Canada dollar	-115,190	-13,109	-36,708	-59,332
Euro FX	-124,855	83,486	-59,176	-28,289
Japanese yen	-52,533	76,983	-12,461	8,687
Swiss franc	-42,387	23,460	-29,746	-33,121
US dollar index	-24,676	14,003	-5,517	-8,607
Mexican Peso	-140,414	-14,488	-96,395	-115,323
Australian dollar	-110,025	-10,793	-79,855	-78,193
S&P 500	-88,893	33,981	-55,890	-77,473
T-note -10 yr	-74,761	229,611	62,061	130,308
T-bond -30 yr	-43,324	88,803	6,676	10,601
Eurodollar	-1,179,414	81,781	-392,482	-261,942
Crude oil	-319,669	-25,439	-207,579	-219,619
Heating oil	-66,097	7,568	-45,946	-40,255
RBOB Gasoline	-85,987	-10,453	-62,224	-57,944
Natural gas	109,696	228,910	109,696	130,610
Copper	-36,201	1,793	-8,548	-7,533
Gold	-302,740	-193,197	-247,684	-240,508
Platinum	-34,909	-15,759	-27,239	-25,318
Silver	-65,413	-33,328	-33,328	-34,323

Commercial Net Tracker instructions: This form tracks the Commitment of Traders (COT) data for the commodity futures market. This form "looks" at the most recent five weeks of COT data and provides visual indications of the data. A) If the current value is at a 12-month low, the cell will display a red/burgundy background. B) If the current value is at a 12-month high, the cell will display a green background. C) If the current value went from net negative to net positive, the cell will display a blue background (indicating a bullish condition). D) If the current value is both a 12-month high and also went from a net negative to a net positive, the background will be green. You should view the data with green backgrounds to determine if they also went from net negative to net positive.

If you need help understanding how to understand how to use the COT report to your benefit, please email me at Gary@crbtrader.com and put COT report in the subject line. Please include your name and telephone number in the email.

Fundamentals

Corn prices surged to an all-time nearest futures high of $7.93 a bushel after the USDA lowered its U.S. corn production estimate and cut its U.S. and global carry-over estimates.

Bullish factors include:

1. The USDA’s June 9 cut in its U.S. corn production estimate for this year to 13.2 billion bushels from last month’s estimate of 13.505 billion bushels as wet weather cut planted acres to 90.7 million from a May estimate of 92.178 million.
2. The USDA’s June 9 cut in its 2011-12 U.S. carry-over estimate to a 15-year low 695 million bushels from a May estimate of 900 million and the cut in its global corn carry-over estimate for 2011-12 to 111.89 MMT from a May estimate of 129.14 MMT.
3. IGC’s prediction that global corn inventories will fall to 111 MMT in 2011-12, or about 13% of consumption, the smallest stocks-to-use ratio since 1974.

Bearish factors include:

1. Speculation that livestock producers will switch to wheat from corn for their feed needs as the price of wheat has fallen to its cheapest relative to corn since 1984.
2. The USDA’s May 11 cut in its 2012 U.S. corn export forecast to 1.8 billion bushes, a nine-year low, as record high prices erode foreign demand.

Wheat prices fell to a three-week low, but remain within a wide six-month $2.37 a bushel range.

Bearish factors include:

1. The USDA’s June 9 hike in its U.S. winter wheat production estimate to 1.45 billion bushels from a May forecast of 1.424 billion.
2. Harvest pressures after the USDA reported that 10% of the U.S. winter wheat crop was harvested as of June 5, higher than the five-year average of 6%.
3. The resumption of Russian wheat exports starting July 1.

Bullish factors include:

1. The USDA’s June 9 cut in its 2011-12 global wheat production estimate to 664.3 MT from 669.6 MT in May along with the cut in its U.S. carry-over estimate to 687 million bushels from 702 million in May.
2. The prediction from Shanghai JC Intelligence that China may double its wheat imports this year to about 3 million tons as drought cuts its wheat output this year to 96.5 MT, below the 115.5 MT predicted by the USDA.
3. The action by the IGC to cut its global wheat production estimate for this year to 663 MMT from a May forecast of 667 MMT.

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