Flowers, age of certs and options

Flowers, age of certs and options
Monday, October 04, 2010
Commodity markets were very volatile at the end of 3Q, on what seemed to be fund profit-taking,
especially for the softs. The quarter though was very positive if one looks back at the beginning
of the period when both equities and commodity indices were trading at 2010 lows. Three months
later the CRB is up 10.96% and the S&P 10.77% higher. The greenback on the other hand lost 11.40%
against the Euro, and the Dollar Index is down by 8.49% during the same period.
US personal income and spending last week came a little higher than expected, as the pending home
sales also rose more in August than forecasted, but the quick reversal of US dollar today, with
the newswires appointing to lower risk appetite, pushed lower several asset classes.
The coffee market was not able to sustain at US$ 190.00 cents, the upper part of the range I
suggested on our last report, as it encountered commercial selling that later called speculators
to liquidate part of their longs. With the weather being regular in the major origin, pictures of
flowering started to flow at everyone’s e-mail – making some traders bearish.

Technical Focus: The sudden hike and fall of the “C”, which broke the 180cts and traded close to
170cts, does not give much courage for bulls. Technically if prices dive below 170.00 more stops
will be triggered, and we could se a much bigger chunk of longs being dumped. NY needs to
consolidate above 170.00 and recover above US$ 173.70 cts, otherwise the 50% retracement at
165.95 will be the next target. LIFFE does not look good either, and even though funds are not as
long there as they are on ICE, if November breaks below 1600, and even more important 1570,
prices could test 1490. A move above 1668 could calm down bears.

Fundamental Focus: The broad-range that the coffee market traded in the past sessions was useful
to point where commercials are “parked” at, as they decided to participate on the selling near
190.00 and on the buying near 170.00. As rains reached the entire coffee belt in Brazil, in very
good volume and pace, the trees “woke up” and buds and flowers can now be seen in the South of
Minas and other areas. So, if there was still any “weather premium” it is now gone, even though
excessive rains in Central America and Colombia might have caused fungus and potential (small)
losses. The market right now perceives that the flowering is negative, and for the despair of
the origins that were not able to take advantage of higher prices, funds are still holding a
sizeable long position that could add more selling pressure in the market.
Bulls argue that the industry will provide support, which might be partially true. Why partially?
Because of the reason we mentioned here last week: roasters have seen higher prices, and now that
we are reaching the end of the off-peak period, why would they rush? There were rumors that I new
turn of price increases of roasted-andground was being prepared, so maybe it could be set aside
for awhile, as well as the flat-price coverage.
Differentials for mild-beans have not eased further, but neither firmed with the collapse of the
board. Brazil certainly will be out of the market for a while, as they sold quite a bit and may
now allow them to seat on the sidelines. A weaker future-market nominally firms up
natural-differentials, which could turn to be positive down the road, as ICE certified stocks
become (more) attractive again. Talking about it, last week the exchange released for the first
time the age of the inventory. According to the data, on December 1st 2010 the 1,959,146 bags
will have on average 871.78 days, and US$ 13.91 cents of aging-penalty. Once more this is the
average, but one should not forget that coffee with 30 cents of more of discount can be found. I
got an e-mail from a contributor complaining about the data, mentioning that it is not precise as
there is a good chunk of re-certification that has made part of the coffee “younger”. Well,
according to the rules, to pass the grading test the coffee has to be “greenish”, so…
Back to Brazil, the government announced that it will auction the remaining of the official
inventory of coffee from 1987 to 1999 crops – about 480K bags. Only the local roasters will be
given the right to buy it, and according to the announcement it will be spread out not to impact
prices. There goes the last bag bought by the instinct IBC (Brazilian Institute of Coffee). Bears
argue that even the government wants to take advantage of the current high prices.
On the robusta side we hear that the Vietnamese crop might be as high as 20.5 mln bags, 2 mln
bags more than official sources. London led the price fall in the coffee World yesterday, would
that be the reason?
New York is in very dangerous territory as there are 7,565 lots of the 170 put opened, between
November and December expiration. After that the biggest OI is on the 150.00 strike, where very
few players believe the market could go (how many thought NY could trade at 198.00 in
September?).
Maybe the 170/190 range could have been wrongly predicted and the lower boundary might be pushed
a little lower – US$ 160.00?
I am traveling tomorrow to Switzerland to visit some customers and attend Friday’s Coffee Dinner.
If someone has an opening for a visit please just let me know.
Have a good week and good trades.

The Conclusion
NY failed to sustain above US$ 190.00 cents and not even the weakness of the US dollar was able
to provide support for prices after pictures with flowering hit the inbox of market participants.
With a higher forecasted Vietnamese crop, some say above 20 mln bags, and a weak technical
picture, London collapsed today taking NY down just when of the options-pit was opening.
The wide range of the past 5 sessions was useful to uncover commercial activity at the extreme
points, and while bulls argue that more roasters buying underneath will provide support, bears
say that a new rally will find more origins willing to hammer the market.
On the downside the danger lies on the size of the open interest of the 170 strike, which could
provoke a new wave of selling. Also the new that just came out regarding higher taxation on
fixed-income investments for non-Brazilian residents, could reverse the rally of the Real. The
finance minister doubled the tax from 2% to 4% in an attempt to contain the Brazilian Real
appreciation.

Best Regards,
Rodrigo Costa
rodrigo.costa@newdge.com

Newedge - Rodrigo Costa

04/10: Coffee Futures Drop As Supply Concerns Ease

NEW YORK (Dow Jones)--Coffee futures plunged to their lowest levels in nearly six weeks as traders took profits ahead of harvests throughout Central America and Colombia.

Analysts said losses early in the day triggered a string of automatic sell orders that sent prices to their lowest level since Aug. 27.

"The funds that were long have some stops in there to protect profits," said analyst Bill Raffety at commodities futures brokerage Penson GHCO, referring to speculative investors, such as hedge funds, that had standing orders to close out positions once prices fell below certain levels.

Coffee for December delivery settled 8.6 cents, or 4.8%, lower at $1.7250 a pound on ICE Futures U.S.

Coffee futures have soared since June on fears that drought in Brazil, the world's biggest coffee grower, would damage its crop of highly sought arabica beans and leave world supplies unable to keep up with demand. But those concerns now appear overblown.

"Prices are very unjustified," said Tom Mikulski of Lind-Waldock in Chicago.

Now that Brazil is getting wetter weather and a global surplus is more likely, traders are quickly pulling back. Monday's session marked the fourth consecutive day coffee futures settled lower.

"October kicks off harvest season for Central America and Colombia," said James Cordier of Liberty Trading Group. "Supplies are not going to be huge, but they will be available this month."

He said prices could dip as far as $1.65 pound in the coming days should funds continue closing out long positions, essentially cashing in on bets that prices would rise.

29/07: Brazil's Bumper Coffee Harvest Nears End

Brazil's bumper coffee harvest has gone smoothly this year and is almost entirely completed, says Gil Carlos Barabach, a coffee analyst at local agricultural consultancy Safras & Mercado. This season, the arabica harvest which began in around May, was spurred by attractive coffee prices, he
says. Barabach pegs the 2010-11 arabica and conillon crop at 54.6 million 60-kilogram bags. Carlos Santana, a trader at Santos-based exporter Interagricola, agrees that Brazil's harvest has gone well and was helped by favorable dry weather. The quality of the beans has been exceptional, he says.
Moreover, concerns about the development of the next 2011-12 coffee crop in Brazil have been eased by recent rains, he adds. Brazil is the world's No.1 coffee producer.

A diferença entre os cafés Conilon e Arábica Café - Revista Cafeicultura

27/09: Rain Bodes Well For Brazil's 2011 Coffee Crop

DJ MARKET TALK: Rain Bodes Well For Brazil's 2011 Coffee Crop[Dow Jones]--Rain in Brazil's main coffee growing regions is "fantastic" news for local producers, says John Wolthers, a trader at coffee exporter Comexim. Although the rain fell later than expected, it is now coming at an optimal time to trigger good flowering on coffee bushes that determines the size of next year's crop, he says. Although the next crop will be seasonally smaller, Wolthers says that the output is likely to be a good volume despite the long period of dry weather that threatened to hurt the development of the 2011 crop. "This is fantastic news for producers," Wolthers says. Moreover, Wolthers says that Brazil's coffee producers have cash in their pockets after brisk sales throughout 2010 and they don't currently face pressure to sell, he says. Brazil is the world's No.1 coffee producer. Contact us at +55-11-3544-7074; Anthony.Danby@dowjones.com

23/09: ICE Coffee Higher, Few Brazilian Sales

1631 [Dow Jones] Coffee futures on ICE ended higher, but the rise failed to trigger significant trade in Brazil, the world's No. 1 coffee producer. Average prices for a 60-kilogram bag of arabica coffees in the local spot market Thursday are some 15 Brazilian real, or $9, lower than last week after bean
prices dove early this week, says Gil Carlos Barabach, a coffee analyst at local agricultural consultancy Safras & Mercado. Moreover, Brazil's producers are waiting to see whether rain forecasts in the coming days will be enough to alleviate potential damage to next season's coffee crop, he says. "Having sold a lot of beans already, they can afford to sit back and wait," he says. Arabic coffee for December delivery settled 0.9% higher at $1.8165 a pound.

Coffee Futures Climb on Brazilian Supply Concerns; Sugar, Cocoa Advance

By Elizabeth Campbell and Chris Kay - Sep 23, 2010 11:21 AM GMT-0300 Thu Sep 23 14:21:08 GMT 2010

Coffee futures climbed on concern that a lack of rain will reduce crop prospects in Brazil, the world’s largest producer. Sugar and cocoa gained.

Brazil had dry weather since April and needs rain this month as coffee trees start flowering to produce beans for next year’s harvest. In the seven days starting Sept. 30, as much as 200 millimeters (7.9 inches) of rain may fall, said Expedito Rebello, the head of research at the government’s Meteorology Institute, known as Inmet.

“We had a dry weather pattern which was very, very worrisome for some people,” said Rodrigo Costa, the vice president of institutional sales at Newedge USA LLC in New York. “The market is waiting for a confirmation that we’re going to see rains in a regular way that usually takes place from October on.”

Arabica coffee for December delivery advanced 0.7 cent, or 0.4 percent, to $1.8065 a pound at 10:16 a.m. on ICE Futures U.S. in New York. Before today, the commodity jumped 32 percent this year.

Robusta-coffee futures for November delivery gained $18, or 1.1 percent, to $1,714 a metric ton on NYSE Liffe in London. Earlier, the price reached $1,727, the highest level for a most- active contract since Aug. 24.

“Unrest persists on the coffee market,” Commerzbank AG said in a report. “We are seeing daily changes in the key estimates of the impact of the drought in Brazil and whether the forecast rainfall will be enough to prevent substantial damage to the crops.”

Brazil Forecast

Brazil may harvest 47.2 million bags this year, more than last year’s 39.5 million bags, as trees entered the higher- yielding half of a two-year cycle, the Agriculture Ministry’s forecasting agency said on Sept. 9.

Crops in Brazil may be hurt by hail next week as a cold- weather front approaches major producing regions, Inmet’s Rebello said.

Refined-sugar futures for December delivery rose $3, or 0.5 percent, to $610 a ton in London. Raw-sugar futures for March delivery rose 0.05 cent, or 0.2 percent, to 23.24 cents a pound in New York.

Cocoa futures for December delivery gained $23, or 0.8 percent, to $2,785 a ton in New York.

In London, cocoa futures for December delivery was little changed at 1,887 pounds ($2,960) a ton.

Coffee Report - Here comes the rain… - Tuesday, September 21, 2010

The FOMC said the “pace recovery in output and employment has slowed in recent months”, inflation
levels are low, or better saying “below those judged consistent”, and finally repeated that the
committee is prepared to provide addition accommodation if needed.
As a result, two-year treasury yield went down to all time low, gold surged to all time highs, and the dollar weakened.
Yesterday (Monday) the National Bureau of Economic Research (NBER) said the US recession ended in
June 2009, the longest in the post war period (18 months), but unfortunately those without a job
– and the rate has been high for the longest span as well – do not feel like things are better.
Year to date the stock market in US is in positive territory, besides trading-volumes being below
average, while commodity indices are slightly unchanged. Among individual commodities coffee is
the leader with 34.53% gain, followed closely by cotton 34.51% rise, and wheat 32.59% surge. The
biggest losers are natural gas, down by 29.29%, cocoa off 15.51% and sugar that lost 11.73%.
After our last report, two weeks ago, the “C” has tried twice to break the US$ 200.00 cents/lb
level without success, and with the dry weather pattern now being broken by higher humidity
levels and today’s rains in part of the coffee belt in Brazil, prices started to
discount the drought-premium it had built. Weather forecasters are seeing more rains for the end
of September and beginning of October, which if confirmed could take another toll on prices.

Technical focus: Monday’s fall took NY below the 20-day-moving-average and today’s action could
not take it back up. The uptrend channel support was also broken and if the market does not
manage to consolidate above 180.00 more sells-stops will be triggered below 179.60. Funds’
position should probably be around 30K lots netlong, meaning a lot more longs could be
liquidated. LIFFE is holding near its recent high, but only a move above 1700 could really
attract more buyers, while key support is at 1570.

Fundamental focus: Colombia is just about to start its harvest and differentials have gone almost
20 cts lower in the last two weeks. Other-mild producers are getting ready to start the crop as
well, but it does not mean that coffee will be available in good quantity in less than a month.
The only potential origin to sell, Brazil, has taken advantage of higher board levels and
certainly it will not participate on the selling at lower levels (yet) – meaning diffs will get
tighter. While rains in Brazil are welcomed and needed, it was excessive in CAM and Colombia, but
it has stopped now after sadly causing huge damages to Guatemala’s population. Coffee trees have
also being damaged by the high moisture level, and it seems like there will be some loss for the
upcoming crop. We have not heard though of any major production losses. On the robusta side
Vietnam’s crop is being officially mentioned to be around 18 mln bags, but the trade community is
working with a 19.5 mln crop, slightly higher. Certified coffee in US has broken the
psychological 2 mln bags barrier, and as I mentioned here a couple of moths ago I believe it will
be near 1.5mln bags by year end as the drawdown will continue and no new coffee will be
delivered. The dollar weakness could eventually attract more buying of commodities and other
assets, but at the same time with no inflation-risk the macro players might not increase their
position.
I think the short-term is vulnerable to the downside, and it would not be surprising to see the
“C” sliding another 13 cents to test 170.00…

The Conclusion
Implied volatility is giving the impression that not much change is expected for the board, but
the open interest of the 170 put could cause some damage for bulls, while a move above 205.00
would put in danger those without protection.
As we get closer to mild-coffee harvest in CAM and Colombia, higher prices should start to bring
more price fixation and differentials have already started to easerecently.
The fear of drought in Brazil has proven to be early as rains are starting just when it should,
but certainly it is needed to be regular from now on. As a result of the rains that fell in South
of Minas and the forecast of more rains coming this week and at the beginning of October,
NY commenced a correction, that could take the market further down.
Bulls are betting that commercial buying will provide good support, but I doubt it will be enough
if funds are to drop 1/3 of their position quickly.
Since London has not followed much NY on the way up, it might be limited on the downside, even
though it seems like there is plenty of fixation that needs to be done for the new crop in Vietnam.
I am bearish on the short-term.

We shall see.
Best regards,
Rodrigo Costa

Coffee Rally Peaking As Funds Pare Bets on Surplus Up 500%

By Debarati Roy - Sep 13, 2010 3:51 PM GMT-0300 Mon Sep 13 18:51:21 GMT 2010

A file photograph shows a coffee shop employee as he pours coffee beans into a grinder at a Cafe Coffee Day outlet in New Delhi. Photographer: Amit Bhargava/Bloomberg

Robusta coffee beans are seen at a warehouse and factory in Hanoi on December 8, 2009. Photographer: Jeff Holt/Bloomberg

The biggest rally in coffee in five years may be ending as the prospect of larger harvests spurs hedge funds to pare bets on higher prices, potentially cutting costs for J.M. Smucker Co., Kraft Foods Inc. and Starbucks Corp.

Supplies of arabica, the world’s most-grown coffee, will exceed demand by 6.67 million 60-kilogram (132-pound) bags in the year ending in September 2011, according to ABN Amro Bank NV and VM Group. That’s the most in nine years and more than six times this season’s expected surplus. Speculators including hedge funds cut their net-long position, or bets on higher prices, by 8.4 percent since Aug. 17, regulatory data show.

The rise in coffee coincided with surging food prices as flooding in Canada and drought across Russia and Europe ruined crops. Wheat as much as doubled since June, contributing to riots over bread costs in Mozambique, and a United Nations price-index of 55 foods advanced to its highest since September 2008 last month. No such shortages in arabica are forecast, with ABN Amro and VM Group anticipating a 7.4 percent increase in output to almost 86 million bags, the most since at least the season ended in 2001.

“You cannot justify the spike on the upside if you look at the supply situation,” said Christoph Eibl, co-founder of Zug, Switzerland-based Tiberius Group, which manages more than $2 billion in assets. “People who have been betting on coffee may lose. In the long run, fundamentals always overrule.”

Arabica Gains

Arabica rose as much as 50 percent since June 7 in New York trading, reaching a 13-year high of $1.9865 a pound on Sept. 8, partly on speculation that rainfall in Colombia, the second- biggest producer after Brazil, would damage crops. Colombian coffee output gained 55 percent to 615,000 bags in August, the Bogota-based National Federation of Coffee Growers said this month.

Coffee will average $1.52 a pound in the fourth quarter, or 20 percent less than now, according to the median in a Bloomberg survey of seven analysts. Arabica for December delivery declined 0.65 cent, or 0.3 percent, to settle at $1.8915 at 2 p.m. in New York, declining for the third straight session.

Speculators accumulated a net-long position of 44,505 contracts by Aug. 17, Commodity Futures Trading Commission data show. That’s almost three times the five-year average and equal to 1.67 billion pounds of coffee. They cut that in two of the last three weeks, to 40,757 contracts by Sept. 7.

The last time prices rose this fast, in a rally ending in March 2005, arabica slumped 38 percent in the next six months. Futures traded on the ICE Futures U.S. exchange are anticipating a decline next year. Contracts from March 2011 are in backwardation, meaning that nearby contracts are trading at a premium to longer-dated ones, a sign investors may be more concerned about near-term supply.

Cutting Costs

Cheaper beans could help cut costs for companies including Northfield, Illinois-based Kraft, which raised U.S. prices twice since May on some types of Maxwell House and Yuban coffee. Starbucks, the world’s largest coffee-shop chain, said Aug. 17 that more spending on commodities, mostly coffee, would add about 4 cents a share to expenses in the year ending in September 2011.

Smucker, based in Orrville, Ohio, said Aug. 3 that it raised prices by an average of 9 percent for most of its Folgers and Dunkin’ Donuts coffee products. In a conference call with investors on June 17, Vince Byrd, president of Smucker’s coffee business, said the rally was being driven more by funds than supply issues. Arabica had already climbed about 20 percent by then. The company declined to comment further.

Shares of Seattle-based Starbucks are 12 percent higher this year in New York trading, while Kraft gained 14 percent and Smucker dropped 1.7 percent.

Commodity Demand

Higher prices for commodities including coffee, oil and natural gas helped strengthen the Colombian peso and Brazilian real against the dollar in the last 12 months. The peso rallied 11 percent against the U.S. currency, and the real is up 5 percent, trimming returns from dollar-denominated exports.

“The stronger peso takes a little of the shine off,” said Rupert Stebbings, head of the Medellin-based unit of Chilean brokerage Celfin Capital SA. “It’s eroding some of the gains, but this is a coffee price level they couldn’t have imagined.”

While harvests may expand, supply now is still tight, said Nestor Osorio, the outgoing executive director of the London- based International Coffee Organization. Declining inventory “makes the markets much more nervous and much more vulnerable,” he said.

Stockpiles in warehouses monitored by ICE Futures U.S. fell 35 percent this year to 2.01 million bags, the lowest level in more than a decade. This season’s arabica surplus will be 1.01 million bags, the smallest amount since the 2007-2008 season, according to ABN Amro and London-based VM Group.

Coffee Fungus

Problems with crops may also spill over into next season. Colombia’s harvest could decline next year after wet weather caused the worst outbreak of a plant-damaging fungus in a quarter century, Jose Sierra, who represents Antioquia, the nation’s largest coffee-growing province, said Sept. 1.

Speculators added 3,058 contracts to their net-long position in the week ended Sept. 7, the day before futures reached a 13-year high. Prices fell for two consecutive days after that, retreating 2.4 percent.

Prices may keep rising as supplies increase because demand will also climb, said Judith-Ganes Chase, a former Merrill Lynch & Co. analyst who runs a consulting firm in Katonah, New York. Global demand for arabica will expand 0.4 percent to 79.32 million bags in the 2010-11 season, the highest since at least the 2000-2001 season, ABN Amro and VM Group estimate.

Staple Foods

Unlike staple foods such as grains, coffee drinkers may not be willing to pay higher prices, said Raymond Keane, a coffee trader for Balzac Bros. & Co. in Charleston, South Carolina, which supplies the commodity to Kraft and Starbucks.

“There will be a point when consumers say: ‘This is it,’” Keane said. “Coffee is not an important ingredient of our diet. It is not wheat or rice. It’s dispensable.”

Speculation about Colombia’s crop is probably too bearish, said Abah Ofon, a Dubai-based commodity analyst at Standard Chartered Plc, the most accurate arabica forecaster tracked by Bloomberg in the first quarter. Ofon is forecasting a 1.5 million-bag increase in the country’s harvest, for a gain of 19 percent, and fourth-quarter prices of $1.45.

Brazilian production will rise to a bigger-than-expected 47.2 million bags this year, from 39.5 million last year, the Agriculture Ministry’s crop-forecasting agency said Sept. 9.

Arabica Prices

Roasters may also seek to substitute some arabica with robusta, used in instant coffee and espresso blends, said Keane of Balzac Bros. Arabica is trading at 2.6 times the price of robusta, compared with a two-year average of twice as expensive, data compiled by Bloomberg show.

“We’ve seen some international companies ask for more robusta than they used to,” said Bui Hung Manh, head of the business department at Tay Nguyen Coffee Investment, Import and Export Co. in Buon Ma Thuot, Vietnam. “If arabica prices stay as high as they are now, more people will switch to robusta.”

The company is the biggest exporter in Vietnam, the world’s largest producer of robusta. The country will produce 20 million bags of robusta next season, a gain of about 8 percent, ABN Amro and VM Group estimate.

Robusta traded on the NYSE Liffe exchange in London rose to a 21-month peak of $1,838 a metric ton on Aug. 23, before slumping 15 percent.

“When the price trend reaches a crescendo, there are clear signs that an imbalance has built up,” said Peter Sorrentino, who helps oversee $13.3 billion at Huntington Asset Advisors in Cincinnati and correctly predicted the collapse in commodity prices in 2008. “Financial buyers are finally becoming wiser.”

24/08: ICE Coffee Tumbles 8.1% As Funds Sell

1354 EDT [Dow Jones] - Coffee on ICE Futures US tumbled in a technical
correction after the market had become overbought near 13-year highs and as
fund traders sold commodities due to renewed economic fears. Coffee futures had
reached levels considered too high, particularly with a potentially record crop
in Brazil and larger crops in Colombia and Central America around the corner, a
trader says. London robusta coffee also fell, with nearby September down 7.9%.
ICE September coffee fell 14.65 cents, or 8.1%, to $1.6685 a pound. Most active
Dec lost 14.80 cents, or 8.1%, to settle at $1.6845.

Coffee Slides Most Since 2008 on Concern Economic Recovery is Faltering

Coffee declined the most in more than two years as equities tumbled on concern that the economic recovery may be weakening, driving most commodities lower.

The Reuters/Jefferies CRB Index of 19 raw materials plunged as much as 1.4 percent, which would be the biggest drop since June 29, and oil fell below $72 a barrel for the first time in almost seven weeks. Yesterday, coffee reached $1.8865 a pound, the highest level since Sept. 11, 1997.

“There is long liquidation after the market rose to a new high,” said Boyd Cruel, a senior analyst at Vision Financial Markets in Chicago. “The weakness in the equity markets is also adding selling pressure.”

Arabica coffee for December delivery slumped 12 cents, or 6.6 percent, to $1.7125 a pound at 9:47 a.m. on ICE Futures U.S. in New York. A close at this price would mark the biggest decline for a most-active contract since March 2008. Before today, the commodity advanced 35 percent this year on concerns that demand would outpace supplies.

On London’s Liffe exchange, robusta-coffee futures for November delivery retreated $147, or 8.3 percent, to $1,630 a metric ton, the biggest drop since at least January 2008.

A lower close after a high is a “very negative signal,” according to Doug Whitehead, an analyst at Rabobank International in London. “With such a weak technical signal, you would think that would prompt additional selling, as producers and traders might find prices could head lower for the next few days.”

The Dow Jones Industrial Average and the S&P 500 Index dropped both dropped as much as 1.4 percent.

Coffee futures flirt with 13-year high on crop troubles

Retail price hikes lag, but supermarket prices could rise up to 10%

A previous version of this story incorrectly characterized Monday's settlement for coffee futures as the highest since September 1997. The story has been corrected.

SAN FRANCISCO (MarketWatch) -- Arabica coffee futures came off a nearly 13-year high on Monday, but traders say tight supplies are likely to keep prices of the better-quality bean elevated.

Coffee prices have increased 34% this year as recent crops from Colombia and countries in Central America were dogged by poor weather. Concerns about Brazil's upcoming crop also pulled in buyers.

Reuters

As prices soar in the futures markets, U.S. coffee producers have been bracing for higher coffee purchase costs. Some have already increased their prices.

Demand for coffee, however, is generally seen as impervious to higher prices -- coffee drinkers usually only change their purchasing habits if prices rise significantly.

Coffee for December delivery, the most active contract, declined 2 cents, or 1%, to settle at $1.83 a pound on ICE Futures U.S. on Monday. Earlier, they rose to an intraday high of $1.89 a pound.

They settled at $1.85 a pound on Friday, the highest settlement since September 1997. Coffee prices hit a record in May 1997, when prices hit $3.18 a pound.

A small exchange-traded note that tracks coffee futures, the iPath Dow Jones UBS Coffee Subindex Total Return ETN /quotes/comstock/13*!jo/quotes/nls/jo (JO 46.93, -2.62, -5.29%) , by Friday had topped Morningstar's list of best-performing exchange-traded fund, excluding leveraged ETFs, over the past three months. Read ETF Investing blog on coffee futures.

"I do think coffee has a very, very good chance of hitting $2 a pound," said Sterling Smith, an analyst with Country Hedging Inc. in St. Paul, Minn.

Supplies from Colombia are still tight, and it's not clear whether the Brazilian crop can lessen concerns about the precarious supply situation overall, he said.

Moreover, coffee is a cyclical crop, and even-year crops are usually smaller than odd-year crops, he added.

Prices gained earlier Monday as traders worried about Tropical Storm Danielle bringing more rain to Mexico and Central America. But Danielle, likely to be upgraded to a hurricane later on the week, is expected to miss most of the key coffee-growing regions in Mexico and nearby.

Richer brew

Americans don't seem to worry about paying more for coffee, Smith said. Demand cools as prices rise in most commodity markets, but coffee consumption only gets hit if prices increase "a great deal," he added.

He estimated that prices would have to run up to $3 per pound to cause Americans to stop buying as much coffee or start migrating to cheaper brands.

Higher prices already are a reality. J.M. Smucker /quotes/comstock/13*!sjm/quotes/nls/sjm (SJM 59.23, -0.57, -0.95%) , best known for its namesake jams, boosted retail prices by 9% for its Folgers, Dunkin' Donuts and Millstone coffee brands this month. This followed a 4% increase in May.

Kraft Foods (KFT 29.25, +0.10, +0.33%) raised prices for its Maxwell House ground coffee by 30 cents and instant coffee by 2.5 cents, on average. Sara Lee (SLE 14.65, -0.10, -0.65%) said it was raising prices but didn't specify the brands, which include Douwe Egberts and Senseo.

"We expect to see specialty coffee roasters begin raising prices later this year, as lower-priced coffee inventory is cycled," said Mitchell Pinheiro, analyst at Janney Capital Markets. "Retail coffee prices generally move in step with green coffee."

At the onset, rising commodity prices squeeze coffee producers more than the retail customer.

According to the USDA, a 10-cent increase in green-coffee bean prices, on average, trickles down to a 2-cent increase in both manufacturer and retail prices. But if the increase persists through several periods, prices rise about cent-for-cent with the commodity.

Senior market analyst Bill Patterson, with Mintel International Group, sees coffee price tags at supermarkets going up 9% to 10%.

"Whatever is going on at Kraft and Smucker, I'd be really surprised if the food service won't be forced to raise prices as well," he said. "They made the decision knowing others will follow."

Starbucks /quotes/comstock/15*!sbux/quotes/nls/sbux (SBUX 22.99, -0.69, -2.91%) said Aug. 17 it would swallow 4 cents a share in additional commodity costs in fiscal 2011, primarily due to higher coffee prices. The coffee chain noted that its purchase costs aren't necessarily linked to the commodities market because of its contracts with growers around the world.

In its Aug. 2 quarterly regulatory filing, Starbucks said it had committed to purchase an estimated $285 million of green coffee under price-to-be-fixed contracts as of June 27. Starbucks sells its premium bagged coffee at its own stores and at supermarkets, where it recently started to make an even bigger push with its Via instant coffee packets.

Retail chain and foodservice distributor Peet's Coffee & Tea (PEET 35.34, +0.32, +0.91%) said Aug. 3 it has no plans to raise coffee prices this year. At supermarkets, its packaged coffee sells at a 10% premium to other specialty coffees.

But CEO Patrick O'Dea did say Peet's would consider price increases if coffee-future prices sustain a run-up in price over the next six to nine months.

For 2010, Peet's said its coffee purchase costs will be up 2%. In January, the company had expected coffee costs to decline 1%. This price swing will "put about $1 million of cost pressures" on the balance sheet starting in the third quarter, the company has said.

Caribou Coffee Co. (CBOU 9.54, -0.02, -0.21%) said Aug. 4 it fixes the price of its green coffee contracts 12 months in advance and was able to buy coffee at costs lower than current market prices. The coffee chain said it has enough inventory through March 2011.

Rain blamed for tighter supplies

Like the recent rally in wheat prices, coffee's recent surge has stemmed from poor crop production.

Excessive rains and a cyclical rejuvenation of coffee plants have cut into Colombia's crop, which has been about 30% smaller than usual.

Colombia is the world's second largest coffee producer after Brazil, which produces about half of the world's Arabica coffee beans, the most sought-after and highest quality type of beans.

Robusta beans, mostly harvested in Asia, usually go to production of instant coffee or into cheaper coffee blends.

Concerns that Brazil is about to face dry conditions also contributed to the recent price increases.

Brazil had its own problems with last year's crop, affected by rain, said Marcio Bernardo, an analyst with Newedge USA. But even if the drought comes, coffee is a hardy plant that can tolerate some dry conditions and rains later in the season usually don't affect it, he said.

Fundamentals don't quite justify the latest price run-up, but then again the coffee market, like other commodities, is awash with speculative money making it difficult to predict where prices will go, Bernardo said.

Demand for coffee is increasing globally, Country Hedge's Smith said.

For years, Brazil grew most of the world's coffee but Brazilians, although heavy coffee drinkers, had only a passing interest in the choicest beans, which would end up exported.

That has changed as more Brazilians can afford coffee and more people have become more particular about their coffee. This trend could lead to continued higher prices in the long term as more of the best Arabica bean stays in Brazil, Smith said.

Claudia Assis is a San Francisco-based reporter for MarketWatch. Matt Andrejczak is a reporter for MarketWatch in San Francisco. Cynthia Lin is a MarketWatch reporter based in New York.

23/08: ICE Coffee Weakens; Overbought Market

Aug 23, 2010 (Dow Jones Commodities News via Comtex) -- 1435 EDT [Dow Jones] -- Coffee on ICE Futures US fell Monday as prices became top heavy at current levels near 13-year highs, encouraging light selling interest. A mixed trade in the commodity indexes also led to selling in coffee. After hitting a session peak of $1.8675, surpassing Friday's high, Sep became overbought, says Sterling Smith, analyst at Country Hedging in St. Paul, Minn. A total of 217 deliveries were made against Sep on its first-notice day, about in the middle of expectations, and were considered neutral for prices, says Alonso Tomas, trader with Hencorp Futures in Miami. Futures volume is pegged at 11,973 contracts, with 5,485 calls and 4,279 put options traded. Nearby September coffee lost 0.05 cent, or 0.03%, to $1.8150 a pound. Dec fell 1.80 cent, or 0.97%, to $1.8325.

20/08: DJ ICE Coffee Nears 13-Year High As Supplies Remain Scarce

Coffee futures shot to their highest level in nearly 13 years as nearby supplies of top-quality Arabica beans remain tight and producers scramble to acquire the beans.

Friday, coffee traded on ICE Futures U.S. for nearby September delivery hit a high of $1.8480 a pound, the strongest price since December 1997. The contract rose 4.25 cents, or 2.4%, to settle at $1.8155 a pound.

While supplies of quality Arabica beans--the kind traded on ICE--are expected to be replenished when Central America and Colombia harvest their crops in the fall, nearby supplies remain tight, forcing prices higher, said Rodrigo Costa, vice president of institutional sales at Newedge in New York.

A lack of producer selling in the lightly traded market allowed prices to climb, with traders also making purchases before the ICE delivery period against the September contract begins on Monday, said Costa.

Soaring coffee values have forced roasters to hike prices.

U.S. coffee roaster J.M. Smucker (SJM), maker of Folgers coffee, in early August raised prices by 9%, while Kraft Foods (KFT), maker of Maxwell House, increased prices more than 10%.

Coffee buyers and sellers in Brazil, the world's largest coffee producer, tread cautiously this week as local and international bean prices climb.

"Roasters are concerned about high prices and cautious about buying at such high levels," John Wolthers, a trader at coffee exporter Comexim in Santos told Dow Jones Newswires.

In Brazil--the world's No.1 coffee exporter--prices have surged in tandem with sky-high international prices on ICE Futures U.S. In Brazil's spot market, arabica coffees continued to fetch high prices thisweek. A good arabica farmgate coffee (with 16% to 18% of defects) was trading at around 330 Brazilian reals ($188) per 60-kilogram bag on Thursday, Wolthers said. This compares to around BRL230 to BRL240 a year ago.

"It's a great time to be a producer, and a difficult time to be a roaster," he said.

Roasters have been holding off from buying as coffee prices remain high, but some may need to "bite the bullet" and makes purchases.

Some buyers are fixing their coffee purchases before the September contract on ICE expires, he said.

Fernando Mellao Martini, a broker from Mellao Martini Negocios em Cafe, said high coffee prices have surprised everyone. "There's much confusion in the market," he said.

Many producers have already sold good volumes of coffee and are focusing on delivering their beans.

High-level washed coffees continue to fetch around BRL380 to BRL400 per bag, he said. But even with those high prices, some producers are wanting even higher prices, he said.

ICE Change (cents) Range
Sep $1.8155 up 4.25 $1.7740-$1.8480
Dec $1.8505 up 5.20 $1.7955-$1.8650

16/08: ICE Coffee Rises On Tight Supplies, Charts

Arabica coffee on ICE Futures US rose Monday on fund buying linked to a weak US dollar and continued tight supplies of arabica coffee beans in the marketplace, with chart strength also applying upward price pressure, a broker says. Supplies of top-quality arabica beans are extremely tight before the Central American and Colombian harvests commence in the fall.
Coffee prices will likely ease from their elevated levels once the new 2010-11 crop is available and supply concerns ease, the International Coffee Organization says. Global coffee consumption in 2009 fell by 1.5% to 128.8 million bags, from 130.7 million in 2008, the ICO says. It maintained world production for the 2010-11 crop year in a range of 133 million to 135 million bags. Coffee futures attracted chart-based buying after the September contract rallied above Friday's high on its way to a two-week top of $1.8060 a pound. Volume is pegged at 33,373 contracts, with 8,002 calls and 5,952 put options traded. Nearby September coffee on ICE rose 3.20 cents, or 1.8%, to settle at $1.7870 a pound.

10/08: Sugar Futures Rise on Russian Drought Concern; Cocoa Falls, Coffee Steady

Sugar futures climbed the most in two weeks on concern Russia’s beet production will drop because of a prolonged drought. Cocoa prices declined, and coffee was little changed.

Russian sugar-beet output may trail forecasts by as much as 20 percent, the nation’s Sugar Producers’ Union said. The country may import about 1.8 million metric tons of raw sugar in 2011, the same amount as this year. Futures in New York tumbled 6.1 percent in the previous three sessions, partly on forecasts for higher production in Brazil and India.

“The Russian news is providing some support to the market,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock, a broker in Chicago. “The sell-off has been overdone.”

Raw sugar for October delivery gained 0.83 cent, or 4.7 percent, to close at 18.56 cents a pound at 2 p.m. on ICE Futures U.S. in New York. The price has tumbled 31 percent this year.

Refined-sugar futures for October delivery increased $10.60, or 2 percent, to $534.70 a ton on the Liffe exchange in London.

Cocoa futures for September delivery fell $109, or 3.6 percent, to close at $2,930 a ton in New York, marking the biggest drop since July 19. Earlier, the price touched $2,907, the lowest level since July 22.

Exports from the Ivory Coast, the world’s biggest producer, climbed 40 percent in June, according to data supplied by the ports of Abidjan and San Pedro. President Laurent Gbagbo said last week that farmers can double their output of cocoa and coffee without hindering planting of local staple crops.

In London, cocoa futures for September delivery fell 62 pounds, or 2.8 percent, to 2,123 pounds ($3,371) a ton.

In New York, arabica-coffee futures for September delivery were little changed at $1.6965 a pound. On Liffe, robusta-coffee futures for September delivery fell $16, or 0.9 percent, to $1,708 a ton.

06/08: Falls On Commodity Sales Following Jobs Data

Arabica coffee futures for September delivery fell Friday, pressured by a weak trade in commodities on softer-than-expected economic data and favorable conditions in top grower Brazil.

Nearby September coffee on ICE Futures U.S. in New York lost 2.45 cents, or 1.4%, to settle at $1.6740 a pound.

A weaker-than-expected July jobs report caused traders to shed riskier commodity assets, and coffee fell as a result.

Nonfarm payrolls fell by 131,000 in July, the U.S. Labor Department reported, more than the 60,000 jobs analysts had expected the economy to lose.

"Everyone was kind of pinning hopes on this report because if any of the [government] stimulus was actually helping it would have showed up by now, and people kind of threw in the towel on the jobs picture improving any time soon," said James Cordier, analyst and president of Liberty Trading Group in Tampa, Fla.

The unemployment rate held steady at 9.5%.

Despite the losses, coffee futures remained confined to their recent trading ranges, a broker said.

Traders are reluctant to press the market too low, with supplies of top-notch arabica beans out of Central America and Colombia remaining tight, he said.

Weather conditions in top coffee grower Brazil remain mild and supportive of the ongoing harvest. Producers there are seen holding back arabica supplies in the hope that prices will resume their uptrend.

Brazil's cyclically larger 2010-11 coffee crop is expected to total 45.8 million 60-kilogram bags, Brazil's Census Bureau said Thursday. The harvest began in May and is expected to run through October.

Coffee output from Colombia rose 35% in July to 787,000 bags, owing to favorable weather, Colombia's National Federation of Coffee Growers said Thursday. Colombian production is beginning to rebound after falling 32% in 2009 compared with 2008, due to adverse weather.

Colombia is the world's largest producer of mild, washed arabica beans--the kind deliverable against ICE coffee futures.

ICE warehouse stocks fell 951 bags to total 2.075 million bags, the exchange reported.

Total open interest on ICE rose 132 to 166,272 contracts.

Volume was pegged at 30,057 contracts traded, with 3,377 calls and 2,704 put options traded.

ICE Change (cents) Range
Sep $1.6740 dn 2.45 $1.6525-$1.7135
Dec $1.6870 dn 2.35 $1.6685-$1.7245

05/08: Inches Higher; Locked In Range

Arabica coffee prices drifted higher in range-bound trade Thursday.

Nearby coffee for September delivery ended 0.10 cent, or 0.60%, higher at $1.6985 a pound on ICE Futures U.S.

Supplies of high-quality arabica coffee beans are tight, and that situation supplied technical chart patterns that attract interest from speculative traders like banks and hedge funds. Two seasons of poor coffee harvest in Central America and Colombia--locations key to premium bean production--were quickly built into prices. Now the market is in a choppy holding pattern.

"We're trapped between producer selling at $1.80 and commercial support below $1.70," said Luis Rangel, vice president for commodities derivatives at ICAP Futures in Jersey City, N.J. "In the middle we're seeing a real lack of momentum and activity."

There is uncertainty about the amount of beans from Brazil, the world's top producer, that will be considered of high enough quality to meet roaster's standards. Beans from Colombia and Central America are typically of a higher standard than Brazil's.

Brazil's 2010-11 coffee crop is expected to be 45.8 million 60-kilogram bags, the agricultural survey group of Brazil's Census Bureau, the IBGE, said Thursday. Brazil, the world's No. 1 coffee producer, has a cyclically larger crop this year compared with last year. The harvest for arabica beans, the main export coffee, started in May and should run through September.

ICE coffee open interest--the number of active positions left at the end of the session-- decreased by 42 lots Wednesday to total 166,140 lots, according to exchange data.

Volume to the point of settlement was estimated at 23,671 lots, according to exchange data. In options, approximately 3,442 calls and 2,918 put options traded.

ICE Change Range
Sept $1.6985 +0.10c $1.6910-$1.7265
Dec $1.7105 +0.20c $1.7015-$1.7370

04/08: Higher As Funds Buy

NEW YORK, Aug 04, 2010 (Dow Jones Commodities News via Comtex) -- Coffee prices rose Wednesday from recent losses as speculators continued to drive volatile trade.

Nearby coffee for September delivery 3.10 cent, or 2%, higher at $1.6975 a pound on ICE Futures U.S.

Coffee prices have rallied 23% since June. Both fundamental and technical factors are driving the market, but fund interest seems to be the main catalyst in recent choppy trade. World supplies of high-quality arabica coffee beans are tight after two years of poor harvests in Colombia and Central America.

Though a bumper crop is flowing in from Brazil, there is indecision in the market as to whether those beans will be of sufficient quality to meet market demand. Available premium arabica supplies are tight, particularly ahead of the late fall harvest in the main origins of that coffee.

In the meantime, fund traders are pushing prices.

"Funds are looking for something to happen," said Sterling Smith, market analyst at Country Hedging in St. Paul, Minn. "Perhaps a major setback in production."

September coffee is establishing a new range from $1.60 to $1.80, Smith said.

"Prices can stay in this box for a very, very long time," he said.

ICE coffee open interest--the number of active positions left at the end of the session--decreased by 2,794 lots Tuesday to total 166,182 lots, according to exchange data.

Volume was estimated at 21,436 lots, according to exchange data. In options, approximately 8,980 calls and 1,983 put options traded.

ICE Change Range
Sep $1.6975 +3.10 pts $1.6760-$1.7170
Dec $1.7085 +3.20 pts $1.6850-$1.7270

03/08: Slides As Funds Sell In Volatile Trade

NEW YORK (Dow Jones)--Coffee prices sank Tuesday as technical chart cues directed speculators to sell.

Nearby coffee for September delivery settled 5.85 cents, or 3%, lower at $1.6665 a pound on ICE Futures U.S.

Despite Tuesday's losses, arabica coffee prices have risen 22% in the last two months. The market hit a 12.5-year high Monday. A dearth of high-quality beans combined with technical chart patterns originally attracted buying. A large amount of those premium arabica beans will be unavailable until the fall harvests in Colombia and Central America. Though Brazil--the world's leading coffee producer--is currently harvesting a crop, analysts are divided on the possibility that those supplies will be able to plug the gap in premium bean supplies for a third consecutive year.

Speculative traders, like banks and hedge funds, liquidated bullish long positions, and more selling was triggered as prices fell below $1.70, said Boyd Cruel, senior softs analyst at Vision Financial Markets in Chicago. The September contract has strong support at $1.61, Cruel said.

Commercial traders that use the market to hedge trade of physical coffee are only lightly participating in the volatile market, said Marcio Bernardo, a commoditites analyst at Newedge USA in New York.

"Everything else that is driving this market is funds," Bernardo said.

Volume was estimated at 29,475 lots, according to exchange data. In options, approximately 4,018 calls and 4,440 put options traded on the floor.

ICE coffee open interest--the number of active positions left at the end of the session--decreased by 422 lots Monday to total 168,976 lots, according to exchange data.

ICE Change Range
Sep $1.6665 -5.85c $1.6515-$1.7445
Dec $1.6765 -5.65c $1.6610-$1.7520

02/08: Eases From 12.5-Year High On Profit-Taking

NEW YORK (Dow Jones)--Coffee prices stumbled back from nearly 12.5-year highs Monday on indications the rally had outpaced the underlying fundamental picture.

Nearby coffee for September delivery ended 3.80 cents, or 2%, lower at $1.7250 a pound on ICE Futures U.S. In early trading the contract hit $1.8150, the highest level for a nearby coffee contract since Feb. 6, 1998.

Coffee prices have sky-rocketted nearly 25% since June 1. Two seasons of poor coffee harvest in Central America and Colombia--locations key to premium bean production--were quickly built into prices. A noticeable decline in exchange coffee stocks pushed prices higher, which attracted interest from speculators such as banks and hedge funds.

The market's mammoth move may have overestimated physical coffee supply and demand, said Spencer Patton, founder and chief investment officer at Steel Vine Investments in Chicago.

"The fundamentals just don't seem to justify this move up," Patton siad.

Coffee futures trading will likely continue to be a volatile affair until the market establishes a visible price range, said Spencer Patton, founder and chief investment officer at Steel Vine Investments in Chicago. The September contract has support near the $1.70--the point from which it broke higher last week, Patton said.

"Coffee just finally got into a profit-taking situation after the move we've had here," said Jack Scoville, vice president at Price Futures Group in Chicago. "Any retracement is going to look kind of ugly."

Scoville said producers in Central America have been fixing prices for the new crop, which weighs on the futures market as fresh short positions indicate more availability of beans in demand.

Brazil's arabica coffee harvest continues at a brisk pace, reaching 63% as of July 28, local agricultural consultancy Safras & Mercado said. Brazil's robusta coffee--typically used in blends--is 99% harvested as of July 28, Safras said.

ICE coffee warehouse stocks decreased by 6,426 60-kilogram bags Monday to total 2.1 million bags, according to exchange data.

ICE coffee open interest--the number of active positions left at the end of the session--decreased by 581 lots Friday to total 169,398 lots, according to exchange data.

Volume was estimated at 31,045 lots, according to exchange data. In options, approximately 6,970 calls and 6,415 put options traded on the floor.

ICE Change Range
Sep $1.7250 -3.80c $1.7205-$1.8150
Dec $1.7330 -3.50c $1.7280-$1.8155

CRB Research Team Of Commodity Research Bureau

Coffee - July 23 2010

CRB Research Team of Commodity Research Bureau - IF - Fri Jul 23, 3:08PM CDT

Coffee prices are trading sideways moderately below last month's 12-year high. Bearish factors include (1) ICO's estimate for Brazil's coffee output to rise to 50 mln bags in the year starting Oct 1, up +27% y/y, and (2) ICO's prediction that global coffee output may rise 12% to 135 mln bags next season. Bullish factors include (1) tight supplies as coffee inventories monitored by ICE have fallen -30% this year to an 8-year low, and (2) ICO's prediction that 2010 global coffee exports will drop below last year's 95.5 mln bags amid "scarcity."

Fundamental Outlook-Bull Market Correction-

Coffee prices are correcting from a recent 12-year high as the market adjusts to a possible bumper crop from Brazil. Coffee fundamentals remain bullish due to tight supplies combined with strong consumption and lagging production. Coffee production in 2009/10 fell -5.9% y/y to 120.6 mln bags (ICO), but production should rebound to 133-135 mln bags in 2010/11 (ICO). Brazil's 2010/11 (July-June) production will rise 23% y/y to 55.3 mln bags on their favorable 2-yr cycle (USDA).

Coffee Supply/Demand USDA:

2010-11 world coffee production a record 139.7 mln bags (+11% vs 2009-10's 125.7 mln bags); 2010-11 consumption 131.5 mln bags (+2.2% vs 2009/10's 128.7 mln bags); 2010-11 world ending stocks at 36.3 mln bags (+16% vs 2009-10's 31.3 mln bags); exports 103.4 mln bags (+5.2% vs 2009/10's 98.3 mln bags); 2010-11 stocks/use 27.6% (vs 2009-10's 24.3%).

30/07: Soars To Fresh 12-Year High As Funds Buy

NEW YORK (Dow Jones)--Coffee prices soared to fresh 12-year highs Friday, driven by speculative fund buying.

Nearby coffee for September delivery ended 3.25 cents, or 2%, higher at $1.7630 a pound on ICE Futures U.S., it's strongest settlement since February 1998.

Coffee prices have risen 6.5% this week. This is the latest leg of a 17% rally that took off in mid-June. Two years of poor weather have hampered production of high-quality arabica beans in Colombia and Central America, the leading sources of that premium coffee. Those beans won't be available until late fall, when harvests begin there.

In the meantime, supplies from Brazil, the world's top coffee producer, have helped fill the gap, but now producers there are holding onto supplies on hopes that prices will climb. Brazilian green coffee exports rose to 1.64 million bags in July, up from 1.47 million in June, according to the Brazilian Green Coffee Exporters Council, or Cecafe. Coffee trade in Brazil saw a lift from the New York rally but activity remained light in the last week, as much of the early crop has been sold and as producers await higher prices, traders there said.

Coffee and most commodity prices got a boost Friday as the weaker dollar sustained speculative interest in commodities. Contracts are less costly in other currencies when the greenback is down. Lower-than-expected U.S. economic growth sparked dollar weakness during the session.

"The market jumped because of very good buying from funds and specs," said Hernando de la Roche, managing director of coffee trading at Hencorp Becstone Futures in Miami.

Coffee futures trading has been volatile in recent weeks as fund traders look to technical charts and macroeconomic cues for direction, as well as coffee's bullish fundamental picture.

Prices are likely to trade within a range of $1.57 to $1.77 in the near term, said Sterling Smith, market analyst with Country Hedging in St. Paul, Minn.

Prices for robusta coffee on NYSE Liffe hit a two-year high Friday. Liffe September coffee settled $63, or 4%, higher at $1,810 a metric ton. Fund buying on top of declining stocks supported that market similarly, analysts there said.

ICE coffee open interest--the number of active positions left at the end of the session--increased by 2,492 lots Thursday to total 169,979 lots, according to exchange data.

Volume was estimated at 28,236 lots, according to exchange data. In options, approximately 10,009 calls and 7,643 put options traded on the floor.

ICE Change Range
Sep $1.7630 +3.25c $1.7265-$1.7875
Dec $1.7680 +3.05c $1.7320-$1.7935

29/07: Rallies 3.4%; Charts, Commodity Strength

Arabica coffee futures for September delivery rallied 3.4% Thursday on broad-based speculative fund buying in commodities, bullish chart signals and continued tight stocks of top-quality arabica beans.

Nearby September coffee rose 5.65 cents, or 3.4%, to settle at $1.7305 a pound on ICE Futures U.S. in New York. The contract reached a high of $1.7460--its strongest price since June 24.

The climb was spurred mainly by technical buying once prices bust out of former chart resistance at $1.7000 a pound, where pre-programmed buy stops were activated, a New York-based broker said.

Coffee futures hadn't topped $1.7000 since June 28, creating pent-up buying interest above the market. Fund participation in coffee, which had been negligible in recent weeks owing to the market's seasonally slow summer period, was reignited by the bullish move.

"The funds took a little bit of profit in the last week or two, but they are having their way with coffee now," said James Cordier, analyst and president of Liberty Trading Group in Tampa, Fla.

Coffee prices continue to be underpinned by tight stocks of top-quality arabica beans, which won't be replenished until the fall, when Colombia and Central America begin their harvests. Colombia is the world's largest grower of mild washed arabica beans. Adverse weather last year cut Colombia's 2009 output by 32% and led to short crops throughout those regions. Though Colombian output is expected to rebound this year, pipeline supplies remain extremely tight.

"In September and October we're going to get some relief from the tight stocks, but until then there aren't any high-quality arabica beans that are going to just come out of the woodwork," said Cordier.

The arabica harvest in Brazil--the world's largest coffee producer--was 58% complete as of July 21, up from 53% in the comparable year-ago period, local agricultural consultancy Safras & Mercado said.

While the Brazilian coffee harvest progresses, aided by dry weather, aggressive origin selling in coffee has remained at bay, allowing futures to climb, the broker said. Brazilian beans aren't deliverable against ICE coffee futures, however, because they don't meet current exchange specifications.

The coffee rally was aided by gains in the commodity indexes. A weak U.S. dollar and a better-than-expected weekly jobless claims report sparked fund buying nearly across the board as traders added riskier bets to their portfolios on ideas economic activity may increase.

ICE September coffee came within 1.9 cents of hitting the 12-year high of$1.7650 established June 24.

The strong close is expected to set the market up for further gains, where bullish traders will likely target a new 12-year high above $1.7650, said Cordier.

ICE warehouse stocks fell 5,640 bags, to total 2.115 million bags, the exchange reported.

Total open interest on ICE rose 1,111, to 167,487 contracts.

Volume was pegged at 29,293 contracts traded, with 10,763 calls and 7,613 put options traded.

ICE Change (cents) Range
Sep $1.7305 up 5.65 $1.6645-$1.7460

Dec $1.7375 up 5.40 $1.6740-$1.7540

28/07: Prices Climb On Buying Of Soft Commodities

Arabica coffee futures for September delivery climbed Wednesday, lifted by speculative buying that took nearly all soft commodities higher.

Nearby September coffee rose 3.65 cents, or 2.2%, to settle at $1.6740 a pound on ICE Futures U.S. in New York.

"The advance was a combination of technicals and the fact that markets like sugar and cocoa also went up, so the soft commodity complex was higher as a result," said Hernando de la Roche, managing director of coffee trading at Hencorp Futures in Miami.

Coffee futures continue to derive underlying support from the lack of top-quality arabica beans in the market ahead of the Central American and Colombian harvests, where most of the mild washed arabica beans are grown.

Much of Wednesday's trading was centered on charts, however, as bullish participants pushed prices toward the high end of the trading range. Even so, coffee futures remained within recent parameters.

September coffee reached a session and 1 1/2-week top of $1.6810 on the buying interest. Prices could gain further, though strong resistance is expected to develop as coffee nears $1.70 a pound.

"We're still in that trading range from $1.55 up to $1.70," said de la Roche.

A lack of aggressive origin selling in coffee is allowing prices to rise. Only small amounts of selling pressure have been seen from the ongoing Brazilian harvest.

Conditions across Brazil's coffee areas are mostly dry, allowing producers to make rapid harvest progress. The crop is also benefiting from a lack of potentially damaging cold temperatures.

ICE warehouse stocks 3,471 bags to total 2.127 million bags, the exchange reported.

Total open interest on ICE fell 406 to 166,376 contracts.

Volume was pegged at 14,644 contracts traded, with 5,867 calls and 3,489 put
options traded.

ICE Change (cents) Range
Sep $1.6740 up 3.65 $1.6365-$1.6810
Dec $1.6835 up 3.60 $1.6435-$1.6900

27/07: Falls On Economic Concern, Weak Charts

Arabica coffee futures for September delivery fell Tuesday on bearish charts and weak commodity indexes linked to renewed economic concerns.

Nearby September coffee lost 1.85 cent, or 1.1%, to settle at $1.6375 a pound on ICE Futures U.S. in New York.

Coffee futures declined, along with a drop in crude oil and precious metals, on weaker-than-expected reports on consumer confidence and regional manufacturing. Commodity indexes declined amid the shaky U.S. economy and helped to put a small dent in coffee.

While coffee prices were influenced mainly by a weaker chart outlook, the latest economic news kept already nervous investors on edge, said Rodrigo Costa, vice president of institutional sales at Newedge in New York.

Consumer confidence fell to 50.4 in July, its weakest level since February, from 54.3 in June, the Conference Board said Tuesday. The data, combined with a weak reading in the Richmond-area manufacturing sector, led to ideas of decreased demand and most commodities, including coffee, fell.

Technical factors also tugged coffee lower as the market continues to retrace after peaking at $1.6760 last week but securing no follow-through buying interest.

In addition, a lack of fund participation in coffee, as traders take summer vacations, allowed prices to drift lower, said Costa.

Despite the decline, coffee futures continue to derive underlying support from tight supplies of top-quality arabica beans. Supplies aren't expected to loosen until the fall when the Central American and Colombian harvests begins in earnest.

Mild selling pressure may have come from the ongoing Brazilian harvest, where producers had picked 58% of the crop as of July 21, data from agricultural consultancy Safras & Mercado showed this week. Safras pegs the total 2010-11 Brazilian crop at 54.6 million bags.

Total open interest on ICE fell 5,231 to 166,782 contracts.

Futures volume is pegged at 12,967 contracts, with 6,324 calls and 2,780 put options traded.

ICE Change (cents) Range
Sep $1.6375 dn 1.85 $1.6320-$1.6655
Dec $1.6475 dn 1.80 $1.6410-$1.6730

26/07: Slips On Mild Retreat From Highs

Arabica coffee futures for September delivery posted modest losses on chart-based selling as prices retreated slightly from the recent rally.

Nearby September coffee lost 0.40 cent, or 0.24%, to settle at $1.6560 a pound on ICE Futures U.S. in New York. September rallied 3% Friday, buoyed by tight supplies.

Futures were held to a sideways trading pattern and narrow ranges amid a quiet news front, an analyst said.

"The market kind of chugged sideways with Europe just starting their summer vacation season with no real weather concerns coming from South America," said Sterling Smith, analyst at Country Hedging in St. Paul, Minn.

The Brazilian coffee harvest continues to progress, with 58% of the crop picked as of July 21, aided by mostly dry weather, agricultural consultancy Safras & Mercado said. This is up from 53% harvested in the comparable year-ago period.

Producers harvested 23.9 million bags of arabica beans out of an expected total crop of 41.5 million, Safras said. Robusta coffee, which is often blended with other beans, comprises the remainder of the crop.

The Brazilian harvest has also been sped along by high prices that spurred farmers to take advantage of the premiums.

Safras pegs the total 2010-11 Brazilian crop at 54.6 million bags.

Coffee futures continue to find support from ongoing tight arabica supplies and strong demand for quality coffee. Adverse weather hurt the Central American and Colombian coffee crops last year, exerting heavy pressure on supplies of top-quality coffee. Those crops are expected to rebound this year, but supplies will remain tight until their harvests begin in the fall, brokers have said.

ICE futures have established a higher trading range with arabica supplies remaining tight, with $1.55 representing cheap coffee and $1.75 being the high end of the range, said Smith.

The Vietnamese government estimates that coffee exports in July will rise 70% from year-ago levels to 1.5 million 60-kilogram bags. So far in the crop year that began Oct. 1, Vietnam has exported 17.08 million bags of coffee.

Total open interest on ICE rose 3,085 to 172,013 lots.

Volume is pegged at 21,477 lots traded, with 3,753 calls and 3,209 put options traded.

ICE Change (cents) Range
Sep $1.6560 dn 0.40 $1.6425-$1.6720
Dec $1.6655 dn 0.15 $1.6500-$1.6800

23/07: Prices Rise As Supplies Dwindle

NEW YORK (Dow Jones)--Coffee prices climbed Friday as tight physical suppliestriggered buying on bullish trend cues.

Nearby coffee for September delivery ended 4.30 cents, or 3%, higher at $1.66 a pound on ICE Futures U.S. The contract has risen 5.5% since July 21.

Coffee is trading in a production deficit as two seasons of poor harvests from Colombia and Central America have left allowed stocks of the high-quality coffee produced there to be depleted.

"We just don't have enough physical coffee to push the prices down," said Luis Rangel, vice president for commodities derivatives at ICAP Futures in Jersey City, N.J. September futures could rise to $1.70 next week, Rangel said.

Speculative traders, like banks and hedge funds, are attracted to the market as its potential to rise is reflected in technical charts. Futures held relative lows near $1.55 early in the week, signaling that demand was strong and prices were likely to rise. At the same time, there are few beans to sell to counter gains in the market.

"Coffee has a huge amount of speculator interest right now," says James Cordier, founder of OptionSellers.com in Tampa, Fla. "Open interest is just ballooning."

Cordier said coffee prices will rise toward $1.68 and $1.69 during August, though sales from Brazil are likely to block ascent beyond that point.

Brazil is the world's leading coffee producer. Coffee roasters have been substituting Brazilian coffee in recent years amid lack of the high-quality arabica beans produced in Central America and Colombia.

ICE coffee open interest--the number of active positions left at the end of the session--decreased by 279 lots Thursday to total 168,928 lots, according to exchange data.

Volume was estimated at 22,756 lots, according to exchange data. In options, approximately 9,432 calls and 3,411 put options traded on the floor.

ICE Change Range
Sep $1.6600 +4.30c $1.6045-$1.6760
Dec $1.6670 +4.40c $1.6115-$1.6805