The soft road ahead GUEST COLUMN Mukul Pal / New Delhi August 27, 2007
We have talked about coffee, sugar and cotton in the past. The last time we visited the cotton farmer was on February 5, 2007.
News of dying cotton farmers in India was published locally and internationally. Extreme negative news and woes of the farmer suggested a price extremity. This is when we said that the worst time for cotton was getting over. Guess what, the crop moved up 16 per cent (MCX long cotton) from the previous intermediate low.
It might seem strange now, but the worst news never comes at a top telling you “please exit”, it will invariably come at bottoms implicitly highlighting a low risk entry point and vice versa. If 16 per cent does not sound exciting, the fact that cotton has outperformed the Sensex should definitely ring a bell. And we at Orpheus believe that the worst is definitely over for cotton farmers, the crop has turned around after decades of choppy decline.
The other softs are also starting to turn up. We have tracked coffee for you for more than a year now, illustrating the fact that a dip finally before $100 was due, before the soft turns around.
The dip happened in May 2007 and it seems that the coffee breakout time is here. Thirty months of price inactivity as prices stagnated between $120 and $100 (New York spot) has come to an end. The prices should double from the May 2007 low. MCX October 2007 coffee should hold the MAY 2007 lows near Rs 7,000. But where's the news? We are looking for it too.
And what about the third soft, sugar? The soft has been falling internationally from the last seven quarters, but the negative news about sugar barons’ miseries, output glut only mark the sentiment landscape from the last two quarters, while prices internationally have been stagnating near $10.
Negative news could not push prices lower. We continue to see this as a low risk entry point for sugar too along with coffee and cotton, all of which should see better prices ahead.
