Bot Cosan (CZZ): Here's why

It's not just your humble correspondent that's been following this stock very closely these last couple of days. Yesterday I got this (extracted) from TL, a regular (and very patient) reader:

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"....... you posted on CZZ recently but curious whether you like it here, despite your previous wariness of the "falling knife." Isn't it now below your cost from the last time around? Unless there is something company-specific that we're missing it has the feel of hedge fund liquidation or similar forced or semi-forced selling. Do you see significant survival risk for this company? Maybe someone who realizes the world economy is continuously deteriorating thinks CZZ is going to get XXXXXX in the process? .....if you were to post again on CZZ I would be a happy blog reader.

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Well here's the word for TL and others: I've jumped off the fence and bought the thing today at U$2.50. Here's why. First let's look at the sugar futures chart.

Click to enlarge

The last time I posted on this I mentioned that I'd like to see $13.50 broken. Well true to form that happened, but then the sugar complex dumped. However the chart shows that there's no real panic going on and it only corrected inside the ascending channel. This, along with the general market negativity, whacked CZZ hard. The same three month period chart here shows the story.

Click to enlarge

Remember that CZZ is a high beta stock (2x) even in the best of times and these are surely not the best of times. So expect volatility at any given moment.

Fundamentals give reason to like CZZ right now. The ongoing sugar shortage in India has not gone away. CZZ has reacted to this by moving its ethanol-to-sugar production ratio down to its minimum of 40% ethanol to 60% sugar. And while we're at it, please remove that immediate kneejerk raction you might have to the word "ethanol", as CZZ supplies the profitable Brazilian market and is not in the same position as those flash-in-the-pans up North.

Financially, the dollar strength is clearly affecting both the commodity and the stock, but if you (like me) believe that there is a limit to this current short-term dollar strength and we're close to the top right now (USD index 89 and bits) there's another reason to like the short-term future. The other great issue at Cosan is its debt burden. Yes it's heavy and they went to the debt market at the wrong time, but it's not too onerous and looks serviceable enough under all logical outcomes to present circumstances.

The bottom line is that I believe CZZ is oversold now. So I bought it, looking in the short term at least for a return to that U$3.70 or so level it was revolving around. DYODD, dude.

I'm still on this sugar thing

Here's Bloomie with a report on today's market:

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Feb. 9 (Bloomberg) -- White sugar rose in London, extending its longest winning run in two years, on a forecast that world sugar production may fall short of demand this year as India switches to being a net importer.

Global output may drop 4.55 million metric tons short of demand this year, said Cargill Ltd., the largest privately held U.S. agricultural company. The gap between production and demand may widen in the 2009-10 crop year, Jonathan Drake, head of Cargill’s sugar business, said at the Kingsman Dubai Sugar Conference today. Prices will probably climb this year, he said.

“Next year the deficit is going to be worse than this year,” Drake said. “The important thing is to get a sense of India. This season’s crop seems to be slipping away” because of yada yada continues here

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And here's the latest daily chart. I'm playing this via Cosan (CZZ) which finished 3% up at $3.92 after breaking through $4 intraday.

DYODD

Soybeans: The penny is starting to drop

H2O please, nice Mr. Farmer

I really wasn't kidding on November 6th. Brazil's soybean harvest was already in trouble this year due to fertilizer issues and my call that Argentina would soon announce problems turned out to be correct. And you might have missed this post on December 26th due to a hangover, but the soybean chart was already very interesting three weeks ago.

But now the key word down here is drought. Rather than link stories here, just go to Google, plug in the words "soybean, corn, drought, Argentina, Brazil" (or preferred combination thereof) and check out the action for yourself. Suffice to say here that in Argentina yesterday futures contracts were very heavily traded and rose sharply. India went limit up overnight.

Bottom line: Put the bean on your radar. It might develop into the story of 2009.

Chart of the day is............

...Silver futures, monthly candles since the year 2000.

Those waiting for silver to bubble up missed the move. Long term the chart looks healthy, but on the other hand it also looks like the NASDAQ 1994 to 2003. Be realistic.

Chart of the day is............

.........sugar, March futures, two year chart.

This because a couple of regulars are intruiged that I've placed a trade in CZZ above the more normal mining fodder on this blog. Well, it's true there's a real bias towards miners here (it's the sexiest industry in LatAm for potential investment, so it gets a lot of my time) but every now and again Otto tries to pretend he's not a one trick pony.

The chart is self explanatory. It goes up, it goes down. One thing CZZ does is times its sales to this chart and last quarter it reported (as usual) that it was storing sugar for future sales.

Looking at this chart, they'd be pretty silly if they didn't. DYODD.

Chart of the day is............

...LME copper futures, still in contango.

Copper is just the example, as everywhere you look contango (which is jargon the financial world uses that simply means "you gotta pay more later than now") rules the scene. Base metals, soft commodities, crude oil etc.

Why are virtually all commodities contangoed right now? I suggest you sit down, take five minutes out of your day and have a good, hard think about it.

Charts of the day are...........

.........the LME futures curves for Copper, Zinc, Lead and Nickel.

Oh these charts are so much fun.

........and are a big difference to the story of just just a few weeks ago...........

.....when the annualized discount was running at 6% to 8%.........

....because now you can get your lump of metal significantly cheaper at cash spot than for 2011 delivery.

Semi OT: There are lots of things I like about inflation, because if you understand how it works it can work for you and not against you. Perhaps the nicest thing about inflation is that due to its very chequered history in fighting the beast over the last four decades, Latin America understands it better than virtually any other place in the world. Compared to the knowledge pool I've been lucky enough to tap into on the subject, you guys up there are greenhorns.

I'm really beginning to look forward to 2009.