Everybody loves Charts!
Every so often, I’ll check in to show items floating around Wall Street circles and blogs.
Longer term trends in the markets and economy.
Extra details on what seems underappreciated or overhyped.
Link to some great explainers on the concepts.
**Everything as of 12/14/2023
“Softs” refer to the group of commodity futures contracts traded where the underlying product (the “actual”) is grown rather than mined or drilled to produce. Items like rice, livestock, cotton and other agricultural products fall into the Softs category.
Softs are often forgotten by the financial media but are some of the most fun and quirky products to trade. Softs are unique for two reasons:
The drivers of price are about as far away from the Efficient Market Hypothesis or Dividend Discount Model as one can get
Their product specifications make any proponent of the metric system furious.
Three softs in particular have been in the news lately for their unique price drivers. Let’s check it out.
Frozen Concentrated Orange Juice
The Product
Let’s see if we can do this without making a Trading Places joke.
Frozen orange juice concentrate became popular in the 1950s and 1960s after scientists invented a way to to send OJ to WWII soldiers abroad. It was Tang before Tang.
One contract of FCOJ equals 15,000 pounds. So, if the current market price is 90 cents per pound, the contract has a value of $13,500 ($0.90 x 15,000 pounds = $13,500). If you buy a contract of FCOJ when the market is at 90 cents, then sell it for 0.95, you would make $750 on the 5 cent move in FCOJ.
The Chart
Since the lows of 2020, FCOJ has quadrupled in price. Price rallies to all time highs have little expectation of stopping before year end either. Bad weather (hurricanes wiped out about 10% of Florida’s orange trees last year) and a bacterial disease called “greening” has reduced yield in the Mexico, U.S. and Brazilian fields.
In Trading Places, Murphy and Aykroyd use a fake crop report to scam the market. Wall Street eventually made it illegal to trade on inside information obtained from the government, in legislation nicknamed the “Eddie Murphy rule”
Interested in being on the Trader Dads Podcast in 2024? Shoot me an email! I’d love to have subscribers on to sit for a discussion
Cocoa
The Product
Cocoa is literally cocoa beans for chocolate. It’s traded on the NYMEX exchange and the ICE exchange plus seems to have a decent CFD daily volume. It’s traded in dollars per metric ton and one contract is for 10 metric tons. The minimum price movement, or tick size, is a dollar, or $10 per contract.
The Chart
The cocoa bull run is being driven by ongoing supply worries in West Africa. Due to exceptionally heavy rains linked to the El Nino wind shifts, the cocoa harvest in the Ivory Coast is now expected to yield of between 3 to 4 times less than last year.
Sugar
The Product
Sugar is oddly complex in its trading. There are 3 distinct contract types
Sugar No. 11
Sugar No. 16
White Sugar Futures
Sugar No. 11 represents 112,000 pounds of sugar per contract. It’s the most liquid and well known contracts to trade as well. It trades in cents per pound. The minimum price movement for sugar is $0.0001 or $11.20 per contract.
The Chart
Sugar was on it’s way towards replicating the pattern of FCOJ and cocoa due to El Nino factors however, sugar prices were undercut by last week's news that India's food ministry directed local sugar mills to stop using sugar cane juice and syrup to produce ethanol in the 2023/24 supply year.
Once the news broke, sugar prices reversed sharply and now will need to find a new equilibrium after the news shock.
P.S.
1 bushel ear corn = 2.5 cubic feet
1 cord (wood) = 128 cubic feet
51.2 bushel ear corn in 1 cord of wood. Duh.
TRADERDADS MAILBAG
Thoughts? Questions? Comments?
Reach out! Maybe I’ll do a full post on the topic or as a Q&A
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