SOFT COMMODITIES ON THE RAMPAGE

Sugar - The theme of soft commodities was one we just discussed in the August edition of our Global Resources Alert. It seems that the rally in crude oil, which traded above $71 per barrel on Monday, is once again setting a fire under the sugar market. For those of you following the plot, sugar is one alternative to oil thanks to its derivative ethanol capabilities.

Front-month sugar in London traded at its highest price since the LIFFE market started trading the contract some 26 years ago while ICE-traded New York sugar expiring in October rose to a three-and-a-half-year high at 19.43 cents a pound. And proving that the market expects the rally to become entrenched the March 2010 contract rocketed to a new all-time high of 20.44 cents.

The ongoing sugar deficit is a widely known story. India, one of the world's top two producers and consumers, turned an importer of sugar in 2009 chasing the global deficit ever higher. It hasn't imported sugar since 2006 but the prospect of lower production is looming thanks to lower rainfall through the monsoon rain season. It was due to a lack of monsoon rains last year that India was forced to import sugar due to a halving of the harvest. This year, through the end of July, monsoon rainfall totals were lagging by around one-fifth of its normal amount.

Meanwhile too much rain in Brazil is slowing the domestic harvest and is reducing the yield. With India expected to ramp up imports to perhaps seven million metric tons in the year starting in October, front-month sugar prices should soon achieve 20 cents per pound.

Coffee - Time to celebrate the end of the recession with a trip to Starbucks perhaps? Investors dove into the coffee market in sympathy with the shenanigans in the sugar market as the dollar's swan-dive looked increasingly compelling, boosting commodity demand.

Arabica coffee futures played right into the pockets of subscribers to our futures trading service, Jurojin Weekly on Monday as Arabica coffee futures trading on the ICE in New York surged 5.2 cents to $1.3340 per pound making that a year-to-date gain of 19%. Subscribers caught the most recent dime price increase in coffee bagging gains of as much as $6,325 on a pair of contracts.

Behind the gain in prices is the fear of tight Latin American supplies as southeastern Brazilian states suffer from yield-reducing rains. July's coffee exports fell 19% from June's level as supply dwindles according to a leading trade group. Central American output from nation's including Columbia, which ranks number two supplier of Arabica beans after Brazil, is also on the decline.

Bonds - Weekend remarks from former Fed chairman, Alan Greenspan on ABC's "This Week" might yet spark a rout for interest rate markets. Yields at the 10-year area of the curve closed last week at 3.48% before today's selling pressure in bond markets. Much of the bad vibe was caused by rebounding manufacturing data the world over, which naturally sets a poor tone for bonds.

The Eurodollar market is running out of room to stay optimistic. The world appears to be firing on all cylinders after the lead of a Chinese stimulus package worth $585 billion and banks lending about a trillion dollars to customers. Whether that turns out be a house of cards or not isn't the issue today.

Rallying equity markets and increasing confidence are likely to raise borrowing costs and that will likely start off causing mayhem in the interest rate markets. Eurodollar futures are starting to look like a mirror image of the dollar index.

Which Texas-based sugar manufacturer
is set to rally 32% before year end
if the commodities markets continue to reach for the sky?
Find out in the August issue of Global Resources Alert!!

The Supreme Council of the Secret Order of Jurojin