Commodities: Grain & Softs Divergence, My Pre Holiday Outlook
Muhammad Faraz 
Commodities Grain & Softs Divergence, My Pre Holiday Outlook
It was a final session of divergent price action across the commodity complex as traders squared positions ahead of the three-day President’s Day weekend in the United States. While the macro landscape was shaped by a slightly softer US Dollar following tame inflation data, individual commodity fundamentals drove the daily price swings .
- Grains: The complex finished the Friday session without a unified direction.
- Corn
managed to eke out fractional gains, showing resilience heading into the long weekend. - Soybeans closed the week with weakness,
retreating further from recent two-month highs as profit-taking and pressure from the advancing Brazilian harvest weighed on prices . - Wheat fell lower
across the board, with Chicago SRW dropping 9 to 10 cents, despite posting solid weekly gains .
- Corn
- Softs: The sector was predominantly in the red.
- Cotton slipped lower,
declining 15 to 20 points, pressured by weak export demand and rising speculative short positions . - Cocoa prices retreated
sharply, extending a six-week plunge to hit multi-year lows as global supplies mount and demand falters . - Coffee
prices gained modestly, finding support as lower price levels sparked fresh demand and bargain hunting . - Sugar prices saw a slight uptick
due to technical short covering, though the market remains under pressure from ample global supplies .
- Cotton slipped lower,
- Macro: The US Dollar finished slightly lower
after January’s Consumer Price Index (CPI) came in cooler than expected (0.2% MoM vs. 0.3% expected), reinforcing bets that the Federal Reserve is done hiking rates for now .
Pre-Market Reaction
The pre-holiday volume has led to muted but telling moves. Corn futures are indicated to hold their fractional gains, showing relative strength. Conversely, soybean and wheat futures point to a slightly softer open when regular trading resumes. In the softs, the bounce in coffee and sugar appears to be more of a corrective move within a broader downtrend, while cocoa futures remain under heavy structural selling pressure.
The Official Narrative
The consensus view attributes the grain weakness to seasonal harvest pressure in South America and pre-holiday profit-taking . For the sell-off in cocoa and cotton, analysts point to bearish supply-and-demand fundamentals, including swelling inventories and lackluster export data . The dollar’s dip is widely seen as a logical reaction to the disinflationary signal from the CPI report .
Interpreting the Move Before the Open
The market reaction tells a story of two different drivers: macro stability vs. micro pressure. The tame CPI data is a gift to the entire commodity complex because a weaker dollar makes US goods cheaper for foreign buyers. However, the fact that most commodities (except corn and coffee) are still falling tells us that supply-side fundamentals are currently overwhelming any macro support.
- Corn’s Resilience: While soybeans and wheat fell, corn held its ground. This suggests that the corn market may be finding a demand floor, possibly tied to ethanol production or better export prospects, that soybeans and wheat have not yet found.
- The “Sugar” Trap: The modest gain in sugar is a textbook example of a “dead cat bounce” driven by technical short covering . With India authorizing additional export quotas and global surpluses forecast, the fundamental ceiling remains firmly in place .
- Cocoa’s Capitulation: We are likely seeing the final stages of a long-term trend reversal. After years of deficits, the market has swung into a surplus, and with demand destruction (consumers balking at high chocolate prices) now evident, the sell-off is accelerating as long-held speculative longs finally capitulate .
Contrarian View
The contrarian take here is to be wary of chasing the weakness in soybeans and wheat at the open. The selling this week was largely pre-holiday and pre-report positioning. The NOPA crush report is due out on Tuesday . If that report shows stronger-than-expected demand, the current dip could be bought aggressively on Tuesday, trapping late shorts who sold on Friday’s technical breakdown.
What Could Happen at the Open and Beyond
We are seeing a clear divergence within the “softs” sector. Money appears to be rotating out of cocoa and cotton—which have deteriorating fundamentals—and looking for value in coffee and sugar, even if that value is just a short-term technical trade.
- Bullish Bias (Intraday): Corn and Coffee.
- Bearish Bias (Intraday): Wheat, Soybeans, Cocoa, Cotton.
Volatility & Sentiment Shift:
Expect below-average volatility during Monday’s closure, but a potentially volatile re-entry on Tuesday. The macro sentiment has shifted slightly “risk-on” due to the dollar’s weakness, but this is being overshadowed by commodity-specific bearish fundamentals. The market is likely to gap open on Tuesday in reaction to any weekend news regarding weather in South America or geopolitical developments.
Forward-Looking Catalysts:
- NOPA Crush Report (Tuesday): The single most important data point for soybeans next week. Expectations are for strong year-over-year numbers . A miss here could accelerate selling.
- Export Sales Data: The cotton market is specifically watching this, as current commitments are lagging the normal pace .
- Ivory Coast Cocoa Arrivals: Any slowdown here could trigger a short-covering rally in the battered cocoa market .
My Prediction & Price Targets for Today
Since markets are closed on Monday, these targets are for the Tuesday, February 17th open.
Based on the synthesis above, I predict that soybeans will gap lower at the Tuesday open but find buyers near the key support level, while coffee will continue its modest recovery due to bargain hunting.
Specific Price Targets & Rationale:
Asset: Soybeans (March Futures)
- Primary Target (PT1 – $10.40): I expect a test of the $10.40/bushel level on Tuesday. Rationale: This represents a pullback to the pre-breakout consolidation zone from earlier this month .
- Key Level to Watch ($10.20): A break below $10.20 would invalidate the bull thesis and signal a deeper correction toward $10.00.
Asset: Coffee (March Futures)
- Primary Target (PT1 – $2.45): A move back toward the recent range highs. Rationale: Demand is price-elastic, and the recent dip has enticed physical buyers back into the market .
What Could Go Wrong Today
For the bullish coffee view, a drop below the recent swing low of $2.35 would signal that the “demand spark” thesis is wrong and that selling pressure is resuming.
For the bearish soybean view, if March futures open higher and clear the $10.80 level, the pullback is over, and the uptrend has resumed.
Key Risk Factors:
- Weekend Weather: Any unexpected frost or rain in Brazil or Argentina over the weekend could completely alter the grain outlook for Tuesday’s open.
- Geopolitical Tension: A surprise escalation in global tensions could send the dollar soaring (as a safe haven) despite the CPI data, putting immediate pressure on all dollar-denominated commodities.
Trading Considerations
Do not chase the cocoa break. It looks cheap, but it can always get cheaper. Wait for a confirmed base to form. For soybeans, wait for the Tuesday open and the first 30-minute candle to close before establishing a position. The gap open could be a trap.
Final Thoughts
The pre-holiday session painted a clear picture: the agricultural markets are pivoting from macro-driven moves to micro, supply/demand-driven moves. The dollar is providing a tailwind, but it is not strong enough to lift the boats that are taking on water (cocoa, cotton, wheat).
The single most important action for today is to update your risk calendar for Tuesday morning. The NOPA report is the “sleeper” catalyst that could spark the next big move in soybeans and its derivatives.
What I’m Watching
I am specifically monitoring the cocoa continuous contract for a potential “washout” low. If we see a sharp intraday spike down on Tuesday that reverses immediately, that will be the signal that the six-week plunge may finally be exhausting itself.
Chart Source: TradingView
Disclaimer: This commentary represents my personal analysis and opinions. It is for informational purposes only and not financial advice. All investments involve risk, including loss of principal. Conduct your own research and consider your financial situation before making any investment decisions.
About the Author
