The Soft markets have been moving around. Coffee really has been. In my thirty years I’ve never seen it like this. Its so choppy. If you don’t see a price you like, just wait a few minutes and you will….

But seriously, options are too quiet. Here we have a market that is moving around a lot and options are eerily quiet. Now, of course a lot of traders are on vacation this week, and likely next, but with moves like we have been experiencing you’d think option volume would be certainly more than what we have. Why?

Perhaps the wide zone of noise is an answer. You see between 160, (maybe 15850) and the recent highs say 172.50, (176.50) movement is unable to stimulate business. I know several of my regular players are standing aside. They seem to feel that even with premiums at high levels the comfort level of holding positions isn’t there. I cannot blame them. High margins may be another reason.

Bottom line in my eye, electronic trading is also to blame. The majority of option business still gets executed on the floor, but much of the extreme moves occur when the option pit is closed.

Anyway, needed to offer some thoughts. Enjoy the long weekend….

The whole situation with Greece kind of reminds me of a marriage gone bad. Instead of having a divorce, the parties drag things out and air their dirty laundry. They involve the larger families, (even more distant relatives) and things get ugly, real ugly. Instead of trying to save the marriage, maybe a swift divorce would have been the more appropriate option. Such a move is frequently is better for the kids. Now those kids will have serious need for years of counseling.

“By any legitimate measure, Greece was unworthy of eurozone membership. That it achieved card-carrying status was down to the sleight-of-hand skills of its Brussels fixers and the acquiescence of central bank bean-counters. Now we know the truth, jet-hosing it with yet more debt makes no sense. Another dose of funny money will delay but not extinguish the need for austerity.

This is why the euro, in its current form, is finished. The game is up for a monetary union that was meant to bolt together work-and-save citizens in northern Europe with the party animals of Club Med. No amount of pit props from Berlin can save the euro Mk I from collapsing under the weight of its structural dysfunctionality. You cannot run indefinitely a single currency with one interest rate for 16 economies, when there are such huge fiscal disparities.

What was once deemed unthinkable is now, I believe, inevitable: withdrawal from the eurozone of one or more of its member countries. At the bottom end, Greece and Portugal are favourites to be forced out through weakness. At the top end, proposals are already being floated in the Frankfurt press for a new “hard currency” zone, led by Germany, Austria and the Benelux countries. Either way, rich and poor are heading in opposite directions.” This was taken from “Whatever Germany does, the euro as we know it is dead” here is a link to the full article.

I mention this because Greece’s recent escapades in economic disaster are a sobering example to the United States of the consequences of allowing government spending to far exceed revenue. Like these comments will do any good, but there I have said my peace. Even the  The International Monetary Fund (IMF) recently released a report that the United States’ debt could surpass 100 percent of Gross Domestic Product (GDP) as early as 2015. So, while these comments here are mine, they needed to be said, if only to allow me to spit out the bad taste in my mouth. I’m concerned about the situation and believe it is worse than is being presented in the major media in our country.

Cutting off the head will kill the beast….I use that in an effort to express what has been happening on the trading floor to paper brokers. Paper brokers are those who fill customer orders for a living. I am one such person and while I take pride in my work, I am growing increasingly frustrated with the treatment I receive from the exchange. And things continue to move in the direction toward the elimination of floor brokers.

I recently was fined $500.00. My crime? Not placing a mark on my trading pad under the heading of clearing house, even though the order tickets all included the appropriate account and clearing house information and trades were submitted in timely fashion and in the appropriate manner. I cannot appeal this, as that rule has been abolished.

From conversations with compliance I subsequently learned that the CFTC has been “cracking down” and not enough fines have been levied.  To me however, it’s more like a cop pulling over a speeder going two miles an hour over the posted limit to please some politician and enhance revenues. There are much bigger fish to fry.
A few other paper brokers, (not local traders) were recently fined for not having a full time stamp following an order’s execution. Two time stamps are required, one when order arrives, or is taken, and following any change,s or once filled. The offender seemed to not notice that the time stamps were only partially legible. Perhaps he was in a rush and the machine didn’t work properly, but then it is the exchange who maintains the time stamp machine’s integrity.  That fine also cannot be appealed, as the appeal process has been halted.

Paper brokers have recently incurred increased fees from their Clearing houses, as a surcharge for doing business. A Clearing House guarantees, or stands behind the solvency of the broker. Many firms now charge a per contract fee, with a monthly minimum of $1,000.00.

In the past few years I have found it necessary to let go two clerks due to the lack of revenue and now operate my business solo.  Revenues have been reduced as brokerage fees have dropped in an effort to remain competitive with electronic markets. And the excchange charges fees for booth space rental, and well suffice to say that costs continue to grow and revenues go down.  All this places a strain on small businessmen such as myself. Many have left the business, others retired when the exchange went public.

If you want electronic trading, just kill the paper broker and there you have it. Although I tend to believe its a safeguard to have an experienced professional to oversee your orders .  Just ask any of my customers if I provide them with better fills on occasion, market information that helps them trade,  or saved them from making a mistake.

Anyway, needed to vent. Have a nice weekend, Jurgens

Following the breath taking bounce in equities, coffee is up, cocoa down, and cotton little changed. Sugar so far seems to have held up against a wave of pressure and OJ is sharply higher as yields were reportedly lower. At any rate, the mixed response is indicative of uncertainty and while stocks continue to advance there likely will be more of a technical play among the softs until some fundamental evidence becomes clear.

Coffee needs to prove itself capable of staying over 13585 basis July, but with June options going off the board on friday it is indeed possible that we may see a rush to a strike price, maybe 140, or maybe 135? Who knows?

Now that OJ has put in the best upside move seen in a while, I am hearing there are reports that it may be due to Brazil’s crop being reduced.

I cannot help but wonder if sugar can now form a base from which to attempt advancement, so far so good as it weathered a lot of stress.

Cannot think cocoa is finished moving down. Specs have pushed that market up. Grindings were higher in anticipation of higher demand, but that demand is questionable.

As a floor broker I find it worthwhile to identify points at which the market, any market, seems vulnerable. Such vulnerability may be cause for trading opportunity, however mostly it benefits short term trading. Longer term trades may also benefit from identifying those places where a market is vulnerable, but the size of the move should also be larger for positions held overnight in these markets.

What are helpful features of vulnerability? Chart points such as highs and lows obviously, as well as moving average levels, but beyond those you might also consider as a market approaches option expiration those strike prices that contain significant open interest. Countless times we have see a shift in a market to move towards a strike price.

Currently the coffee market is approaching option expiration and while earlier this week it appeared as if 140 would be the better candidate, yet low and behold here we are the day before expry trading 135….Now that is an example. The point being that whenever a market approaches expiration, and coffee isn’t there until tomorrow afternoon, it may always be a good idea to consider the vulnerability of prices reaching out for a strike price….and usually one that isn’t as obvious offers specs a cheap play and those seeking a hedge a reasonable opportunity.

One of the bigger keys to what’s in store for commodity prices will be the impact that the stronger dollar emits. While most expect pressure to stem from increasing dollar strength, and certainly that is likely in the short run, the longer term possibilities hold that while exports may suffer, these markets are world markets and the overall supply demand issues will dictate. So in those markets where legitimate shortages exist, one can clearly anticipate prices to rise as that commodity becomes more scarce. Identifying those markets will provide opportunity.

My greatest concern as a soft trader is the effect of all the debt being piled on in the US. I’m concerned as a citizen, but beyond that what will transpire if and when the relative “safety” sought, and usually found, by investors among US Treasuries proves to no longer be the safe investment they once were? Already we’ve seen evidence that Warren Buffett’s paper is more attractive. Eventually inflation will result in my thinking, just a question of when….

Playing hard and fast in a partisan way with the Senate and House rules in an effort to see that some form of “Obamacare” gets passed is waking up more annd more docile American voters. Good! We need a wake up call.

The borrowing and more borrowing is catching up with the US. The safety of bonds may eventually be at stake. Increases in interest rates, the rumors of China seeking an increase over the weekend was enough to send a shiver through the markets….what mext?

I see a time down the road when a severe drop in bond prices will be inflationary and thus support commodity values. When, not yet, not soon, but down the road. We are in for interesting times ahead.

is

.

WASDE-480-17                    March 2010

U. S. Cotton Supply and Use 1/

===============================================================================

:         :         :      2009/10  Projections

Item               : 2007/08 : 2008/09 :===============================

:         :   Est.  :    February           March

===============================================================================

:               Million acres

Area                       :

Planted                  :  10.83       9.47          9.15            9.15

Harvested                :  10.49       7.57          7.69            7.69

:

:                   Pounds

Yield per harvested        :

acre                   :    879        813           774             774

:

:             Million 480 pound bales

:

Beginning stocks 2/        :   9.48      10.04          6.34            6.34

Production                 :  19.21      12.82         12.40           12.40

Imports                    :   0.01       0.00          0.01            0.01

Supply, total            :  28.70      22.86         18.74           18.74

Domestic use               :   4.59       3.59          3.40            3.50

Exports                    :  13.65      13.28         12.00           12.00

Use, total               :  18.24      16.86         15.40           15.50

Unaccounted 3/             :   0.41      -0.34          0.04            0.04

Ending stocks              :  10.04       6.34          3.30            3.20

:

Avg. farm price 4/         :   59.3       47.8     59.0-65.0       60.5-65.5

===============================================================================

Note: Reliability calculations at end of report.

1/ Upland and extra-long staple; marketing year beginning August 1.  Totals may

not add due to rounding.  2/ Based on Bureau of Census data.  3/ Reflects the

difference between the previous season’s supply less total use and ending

stocks based on Bureau of Census data.  4/ Cents per pound for upland cotton.

===============================================================================

Wednesday we’ll receive the latest USDA crop report and it is likely to show a further reduction in the crop. The cold weather did cause damage and this report ought to verify some of that damage. There should be more possible, so lean towards the long side….

Interest rates will be going higher!  Just think about it, as states and countries find themselves in budget deficit, they will have to pay more to borrow money because of the slippage in their ratings.  This leads to higher interest rates all around as people value risk more carefully.  The thought being that if the states and countries have to be bailed out…..oh we forgot, refinanced, that cost will be borne by the larger entity, here in the states, it is the government, in Europe it is member of the European Central Bank.  We have seen wealthy countries bail out their poorer, more leveraged relatives, case point Dubai.
 
Here in the states we, the home owners, find that our real-estate taxes are increasing.  House values continue to retreat and yet, we must pay more in real-estate taxes.  Why, because we are paying for those neighboring homes that have gone into foreclosure.  Crime is on an up-tick.  Even on safe streets, we have an increase in break-ins and robberies as the desperate become more desperate and brazen.  What is to be done?  The world is becoming a less friendly place to work in and to live in. 
 
People today, who are employed, continue to have trouble making their bills.  The tax increase felt by the increase in real-estate taxes along with high utility bills and other increases are causing the steady earner to fall behind.    Credit card companies, instead of understanding that some money is better that no money on a bill, are recklessly raising the rate that they charge on their cards.  One of our cards  is charging almost 26%!  Naturally, we will be closing that account permanently. You would think the financial wizards that run the credit card companies would understand that higher rates on already stressed balances will likely lead to default which will lead to additional write-downs on their financial statements.  Why not reduce interest rates on the cards so that the balance can be paid.  It seems like moronic behavior, wonder why people are getting into credit card trouble, look at the way those companies are run.  So where is the spending going to come from?  Certainly apparel is cheap enough and electronics seem to be cheap as well, but with the current flock of cost increases just to live, who can afford a new outfit or another gadget that you really don’t need?  
 
What impact will all this have on inflation? I suspect once rates move up, so too will inflation, which should be supportive for commodity values. However, the transition will apt drive prices lower as we move from low to higher rates and that may take a while.