30/6: Climbs As Roasters Buy Amid Tight Supplies

NEW YORK (Dow Jones)--Coffee prices rose Wednesday as roasters bought futures representing hard-to-find premium arabica beans.

Nearby coffee for July delivery ended 2.7 cents, or 0.7%, higher at $1.6420 a pound on ICE Futures U.S. The most actively traded September contract also settled 2.70 cent, or 1.7%, higher at $1.6585 a pound.

Coffee leapt to 12-year highs in mid-June as internal trading dynamics set off buying amid tight supplies of high-quality arabica beans. Futures have consolidated lower from a 25% rally in just three weeks.

"The breakout that we saw the last three weeks could be nothing more than a delayed reaction" to market fundamentals, said Luis Rangel, vice president of commodities derivatives at ICAP Futures in Jersey City, N.J.

For the six months preceding the rally, coffee prices were locked in a tight 10-cent range. Despite a dearth of available arabica beans, expectations for a bumper crop from Brazil capped prices. Traders have since realized that majority of Brazil's arabicas do not match the quality of beans from Central America and Colombia. Production there suffered in the last two years due to
unfavorable weather.

Despite sales Wednesday from speculative fund traders like banks and hedge funds, booking profits at the end of the quarter buying from commercial traders like roasters, bought propped-up prices, Rangel said.

September coffee futures have the potential to push past 12-year highs near $1.69 cents, said Jack Scoville, vice president at Price Futures Group in Chicago. The market is unlikely to move lower than $1.50 before new arabica beans begin to reach the market in late fall, when Central America and Colombia harvests coffee, Scoville said.

ICE coffee warehouse stocks decreased by 14,979 60-kilogram bags Wednesday to total 2.2 million bags, according to exchange data.

ICE coffee open interest--the number of active positions left at the end of the session--increased by 1,158 lots Tuesday to total 165,410 lots, according to exchange data.

Volume was estimated at 19,892 lots, according to exchange data. In options, approximately 2,712 calls and 3,301 put options traded on the floor.

Prices for lesser-quality robusta coffee beans, often used in blends, rose to 16-month highs Wednesday. September futures on Euronext NYSE Liffe settled up $30 at $1,731 a ton.

ICE Change Range Liffe Change
Jly $1.6420 +2.70c $1.6000-$1.6470 Jly $1,699 +$29
Sep $1.6585 +2.70c $1.6055-$1.6660 Sep $1,731 +$30

DJ MARKET TALK: ICE Coffee Little Changed; Trade Buys,Funds Sell

1132 EDT [Dow Jones] - ICE arabica futures are consolidating near unchanged
as commercial buying absorbs fund liquidation. Tight supplies of high-quality
coffee could keep arabica prices in a $1.50-$1.70 range until the fall harvest
begins in Colombia and Central America, says Luis Rangel, vice president for
commodities derivatives at ICAP Futures in Jersey City, N.J. Liffe Sep robusta
futures are up $22 at $1,723 a ton. (HEH)

29/06: Falls On Commodity Losses, Strong Dollar

Arabica coffee futures fell Tuesday to their lowest level in nearly a week, pressured by speculative fund-selling linked to an overall decline in commodities.

Thinly traded July lost 4.8 cents, or 2.9%, to end at $1.6150 a pound on ICE Futures U.S. Most active September fell 4.95 cents, or 2.9%, to settle at $1.6315 a pound.

Speculative fund traders sold commodities en masse, as worries over a downward correction to China's leading economic indicator sent a shudder through the markets. Commodity markets, including coffee, then extended losses after a report showing U.S. consumer confidence dove to its lowest level since March.

The Conference Board on Tuesday said China's leading economic indicator grew only 0.3% in April, versus 1.7% reported earlier.

China has a substantial appetite for commodities, particularly crude oil, soany news that its economy is sputtering is a sharp blow to potential demand.

Markets that are tied closely to global economic trends, like crude oil and copper, fell 3% and 5.2%, respectively.

Coffee futures may have been more vulnerable to the declines in the outside markets since rallying to 12-year highs just last week on chart-related buying, unfounded worries over cool weather in Brazil and scarce supplies of top-quality arabica coffee beans.

In addition, traders and analysts have been saying for some time that the ongoing Brazilian harvest, which began earlier than normal due to favorable weather and high world prices, may be finally exerting pressure on futures.

Increased origin and producer sales have surfaced recently in reaction to Brazilian coffee hitting the market and may be starting to loosen up extremely tight supplies.

Brazilian producers had harvested 32% of the arabica crop by June 23, ahead of the year-ago pace of 29%.

Most-active September coffee fell to a session low and nearly one-week low of $1.6010 a pound but recovered a portion of the losses as the dollar came off its strongest level of the session.

In addition to China's woes, bearish economic news from the U.S. caused fund traders to rush to the safety of the U.S. dollar and at the same time shun riskier commodity investments.

The Consumer Confidence Index in the U.S. plummeted to 52.9 in June from a downwardly revised 62.7 in May, the Conference Board said Tuesday.

Spencer Patton, an analyst and chief investment officer at Steel Vine Investments, said coffee futures could correct down to $1.40 a pound in the coming weeks given the increase in Brazilian supplies and the fact that futures have been "way, way overbought."

ICE warehouse stocks fell 1,525 bags to total 2.23 million 60-kilogram bags, the exchange reported.

Total open interest on ICE rose 151 to total 164,252 lots. Futures volume is pegged at 18,347 contracts traded, with 8,540 calls and 7,313 put options traded.

   ICE       Change (cents)    Range
July $1.6150   dn 4.80         $1.5885-$1.6610
Sep  $1.6315   dn 4.95         $1.6010-$1.6800

New York trades at the highest level since February 24th 1998

-20 economies agreed on higher capital for banks and signed a compromise to reduce fiscal deficit by 2013. In the US, the Volcker-rule was approved, but a slightly different version that gives banks some trading room and funds’ sponsorship possibilities (within smaller limits for both). On the last trading sessions equities and commodity indices have been trading into different directions, but it is too early to assure if these two assetclasses will start to have inverted correlation again. Coffee gave it is contribution to the delinking process, running higher on Thursday, while many participants were still sleeping. Those who were short calls (options) had nothing to do to cover their exposure early in the morning other then buying futures on a thin market, and at one point the “C” was rallying US$ 16.00 cts/lb. Origins took the opportunity to sell, but not enough to curb the fund buying enthusiasm. By the way, once more the rally started in London, and then took New York along. Technical Focus: London keeps making new highs regardless the overbought condition of technical indicators. Only if the market breaks below 1645 it could start to trigger some sell-stops, but as long as it manages to hold the 1600 area it might just be called a correction of the uptrend. The “C” is consolidating and to kick sell-stops a move and close below 155.40 is needed. RSI and stochastic are overbought but if it trades sideways for sometime it can do the job of alleviating the condition.
Fundamental Focus: One of the references that we had to believe that the market would rally
towards the middle of the 2nd half of 2010, was the high differentials out of Central America and
Colombia. The simple rationale behind it was just a convergence of the board with diffs, therefore
we said on our presentation in Guaruja that a US$ 30cts/lb gain was quite feasible (but timing is
everything). I thought the weight of the Brazilian crop, which is not small, was the sole reason for
the “C” to be capped until there, and then the market would be free to escalate. Although it did not seem to be a consensus, many thought the same, but the surprise element played out, independently of being intentionally provoked as the lovers of Conspiracy Theory say. The reality is telling us that even though the market rallied 35 cts from where it was trading a couple of weeks ago, the differentials did not ease much. For mild coffee the reason is quite simple: they have little to none inventories being carried, and those who were holding back on their selling, certainly are not in a rush now.
On the Brazil side, it is not that difficult to figure out that producers are taking the opportunity to sell as the COT have showed us, but as several players were short differentials and were getting hurt, the basis did not dilated as much as one would think. BM&F/New York arbitrage is trading at US$ -21 cents/lb, or about 6 cents weaker than it was trading on June 9th. Bears are saying that they were able to buy coffee in Brazil at replacement cost of US$ -28 cts/lb, but for those who were paying R$ 300.00 per bag before the rally, a R$ 320.00/bag in fact represents only US$ 11.00 per bag more, comparing to US$ 46.30 /bag that ICE rallied. The constraints now are
how much more the buyers of physical can take, given that besides paying for the coffee they buy, they also have to send margin to the exchange. A sudden move higher like the one we just saw forces treasury departments to follow closer the trader’s position and risk might limit the exposure. If the market does not rest or go lower, it can trigger cash-flow problems. Back to 1997 the reason the market rallied was scarce availability/producing of mild-coffee, the same reason we are seeing today. Although ICE certified coffee is now at 2.3 million bags, and 13 years ago it was only 20K bags, the composition of the certs does not supply the industry of fresh washed coffee, which was the reason the board was being dragged lower. So the market got used in trading high differentials that got unlinked with New York, and now everyone is scratching their heads as the “C” went up but diffs did not. Does it tell you that more gains are needed? What if you sell the market at US$ 170.00 cts and funds buy another 10K to 15K, taking prices to US$ 200.00 or higher? People were looking to buy US$400.00 cents call today, and a couple of trades took place with the US$ 300.00 strike. In 2008 when the market traded at US$ 171.90 cts funds had a 55K lots long position and the OI was at 189,811 lots. Today they probably have a 40K lots net long (all futures only) and the open interest is at 164,101 lots. Weak-hands that are still short are afraid of being forced to cover their position, and as margins keep going higher the market can become even more volatile.
To finalize we should say that the more Brazil sells at current price-levels, the less they will need to sell later on, so differentials will get a lot tighter again.
Those who have coffee, and money, should not let this opportunity pass. At one point the market will have a strong move lower, but it is tough to know if it will first make shorts suffer or not.

The Conclusion
New York trades at the highest level since February 24th 1998. The last leg of the rally took place early in the morning, and caught the people that were short calls, which were forced to buy
futures to cover their exposure as the pit was closed. London once more started the move, and today it closed near the highs, causing fear on those who are short. Origin selling is mostly coming out of Brazil, as other origins do not have much coffee, but exporters and dealers need the market to calm down not to constrain the cashflow.

Differentials have not changed much besides the US$ 35 cts rally, mainly because no CAM or Colombia have coffee enough to sell. If we compare the fund position to the last time the market traded at US$ 170ish, they got long 55K lots of futures and the open interest was at 186K lots. Assuming today they have a 40K lots with an OI of 164K lots, they could buy another 10K to 15K lots as the number of contracts open keep increasing. The more Brazil is selling the market
on the rally, the least it will need to sell down the road, which does not mean that the “C” can not
drop US$ 20 cents of more once funds decide do sell.
The question is: Will the market trade higher first to then collapse, or it has seen the highs for now?
Funds (that are long) are certainly getting the positive variation margin, therefore giving them
more bullets to play right now. Use options to buy price-protection for levels that
you feel might provoke cash-flow constraints.Have a good day and good trades.
Best Regards,
Rodrigo Costa

28/06: Edges Lower; Outside Markets, Consolidates

Arabica coffee futures edged lower as prices consolidated after last week's rally to 12-year highs, with outside pressure coming from a weak commodity sector and a firm dollar.

Nearby July coffee lost 0.70 cent, or 0.42%, to end at $1.6630 on ICE Futures U.S. Most active September lost 0.80 cent, or 0.47%, to settle at $1.6810.

Coffee futures have taken a breather in the last two sessions after vaulting to 12-year highs last week. Traders may be content to hold prices in narrow ranges as they assess the market's new trading parameters. September coffee rallied to a top of $1.7650 last Thursday but closed at $1.6875, as traders took profits off the newly minted 12-year peak and producers sold. Tight supplies of quality arabica beans continue to support the market, but there are signs that the supply situation may be softening.

The market rally has been centered more on chart aspects than on fundamentals, as the global supply balance has been snug for some time, said Hussein Allidina, veteran analyst with Morgan Stanley.

Tight supplies are now beginning to release their grip on the market with the onset of the large Brazilian coffee harvest, he said in a research note.

In addition to supply concerns, coffee futures have shot up dramatically in the last two weeks because of "unfounded" frost concerns in Brazil. The weather scares, combined with a persistent fall in warehouse stocks, caused coffee futures to climb 25% in the last two weeks, said Allidina.

He projects global 2010-2011 arabica coffee output to rise by 14.2 million bags, year-on-year, with ending stocks seen increasing by nearly five million bags to 367.2 million.

ICE coffee's climb brought out increased producer selling above $1.70 a pound, a signal that the market may be forming a top, said Boyd Cruel, senior softs market analyst at Vision Financial Markets in Chicago.

The rally was "way overdone," and with the Brazilian harvest picking up momentum, prices would be expected to fall more in line with the fundamentals, said Cruel.

The high coffee prices and dry conditions have pushed Brazilian farmers to harvest 32% of the expected 41.5 million bags of arabica coffee through June 23, ahead of the average pace, an analyst with Safras & Mercado said Monday. Of the total arabica and robusta crop, Brazilian farmers have harvested 43% of the 54.6 million 60-kilogram bags.

Weather in Brazil is expected to remain dry until July 11-12, when a cold front will bring two days of rain, forecasters said. They see no risk of crop-damaging frost in the main growing regions.

Coffee futures also found outside market pressure on a lower trade in the commodity indexes and a firming U.S. dollar. A stronger dollar is normally bearish for commodities as it makes them more expensive in other currencies.

ICE warehouse stocks fell 12,286 bags to total 2.23 million 60-kilogram bags, the exchange reported.

ICE open interest fell 874 to total 164,101 lots. Volume is pegged at 9,471 lots traded, with 3,945 calls and 4,258 put options traded.

   ICE       Change     Range
July $1.6630   dn  70    $1.6600-$1.6800
Sep  $1.6810   dn  80    $1.6740-$1.7065

25/06: Inches Higher As Rally Calms

NEW YORK (Dow Jones)--Coffee prices ended modestly higher Friday as bullish momentum from the week's rally carried over.

Nearby coffee for July delivery ended 0.25 cent, or 0.1%, higher at $1.67 a pound on ICE Futures U.S. The contract gained 4% this week.

Coffee prices have soared over the last three weeks as speculative fund traders, like banks and hedge funds, placed bets that prices would rise based on technical chart cues. At the same time, those with bets that prices would fall bought their way out of those positions. In the most recent leg of the rally, prices climbed to levels where coffee producers sold to hedge their crop, which curbed the rally somewhat as buying fervor relaxed.

At the heart of the rally is indecision regarding outlooks for the ability of the incoming harvest to quench demand. Supplies of high-quality arabica coffee, like the beans traded on ICE, are hard to find after two weeks of poor harvests in Central America and Colombia.

Brazil is the world's leading coffee producer, but some traders argue their incoming crop won't contain enough of the top-quality variety to meet market needs.

A record crop of both high-quality arabica beans and the lesser robusta variety is anticipated from Brazil this season. The arabica harvest began in June. Total world production of both varieties is expected to surpass demand estimates by 6%, according to the U.S. Department of Agriculture. Though Brazil's harvest is hitting the market, other Western Hemisphere arabicas won't be available on the widescale until the fall.

Analysts said that in the meantime, fund interest still has a tight grip on price direction.

Fair value for coffee prices is near the $1.55 level, said James Cordier, commodities analyst and founder of OptionSellers.com in Tampa.

"Based on the funds' appetite, it could take a while to get back there," Cordier said. September futures contract could back off 10 cents within the next week, he said.

Analysts note the inherent volatility in the coffee market. Technical momentum indicators show futures are overbought, which could spark losses in the short term if a wave of selling catches on.

ICE coffee warehouse stocks decreased by 4,455 60-kilogram bags Thursday to total 2.24 million bags, according to exchange data.

ICE coffee open interest--the number of active positions left at the end of the session--increased by 1,835 lots Thursday to total 164,975 lots, according to exchange data.

Volume was estimated at 15,281 lots, according to exchange data. In options, approximately 6,469 calls and 6,025 put options traded.

ICE Change Range Liffe Change
Jly $1.6700 +0.25c pts $1.6450-$1.6885 Jly $1,671 +$49
Sep $1.6890 +0.15c $1.6600-$1.7085 Sep $1,691 +$42

Coffee Soars to 12-Year High in N.Y. Amid Low U.S. Inventories

By M. Shankar and Elizabeth Campbell

June 24 (Bloomberg) -- Arabica-coffee prices soared to a 12-year high amid dwindling U.S. inventories and limited premium-bean supplies. Robusta futures rose to a 15-month high.

Stockpiles monitored by ICE Futures U.S. have dropped 27 percent this year to the lowest level since September 2002. Two consecutive poor harvests in Central America and Colombia and rain damage last year in Brazil, the world’s biggest producer, reduced export supplies of high-quality arabica, Kona Haque, an analyst at Macquarie Group Ltd. in London, said in a report.

“Because of this production shortfall, a lot of these producers are just holding onto coffee,” said Fain Shaffer, the president of Infinitytrading.com, a broker in Medford, Oregon. “Stocks in New York have been dwindling. It’s a quality issue.”

Arabica coffee for September delivery rose 8.25 cents, or 5.1 percent, to $1.6875 a pound on ICE Futures U.S. in New York. Earlier, the price reached $1.765, the highest level since February 1998.

Total estimated volume today was 27,391 contracts. On June 11, ICE reported record volume of 110,952.

Robusta futures for September delivery climbed $69, or 4.4 percent, to $1,649 a metric ton on the Liffe exchange in London. Earlier, the price climbed to $1,694, the highest level since March 2009.

Demand for both varieties “remains unwaveringly steady, despite the economic downturn,” Haque of Macquarie said.

Arabica coffee is grown mainly in Latin America and brewed by specialty companies including Starbucks Corp. Robusta beans, used in instant coffee and espresso, are harvested mostly in Asia and parts of Africa.

Arabica had the top gain today among 19 raw materials in the Reuters/Jefferies CRB Index. This year, the price has climbed 24 percent, the second-biggest increase in index components. Hogs have advanced 27 percent.

Robusta is up 27 percent this year. Vietnam is the biggest producer of the grade.

To contact the reporters on this story: M. Shankar in London at mshankar@bloomberg.net; Elizabeth Campbell in New York at ecampbell14@bloomberg.net

24/06: Soars To 12-Year High; Premium Beans Scarce

NEW YORK (Dow Jones)--Coffee prices skyrocketed to 12-year highs Thursday on the scarcity of high-quality beans in a market where overall supplies are grinding lower.

Coffee for July delivery, the nearby contract, settled 8.15 cents, or 5%, higher at $1.6675 a pound on ICE Futures U.S. Coffee futures last traded at these levels in February 1998.

Buying by speculators, such as banks and hedge funds, has provoked a 25% spike in coffee prices since June 7. The market rallied to two-year highs late last week. Thursday's move marks a resumption of the upward momentum that has attracted interest from investors looking to capitalize on poor harvests in Colombia and Central America. These regions are known for their arabica beans, which are highly sought for their taste in brewed coffee. The next harvest from these regions won't come until the fall.

The realization that prices haven't, or can't, elicit additional supplies is exacerbating the surge.

"The rally we saw really hasn't produced the coffee that the market seems to want at the minute," said Jack Scoville, vice president at Price Futures Group in Chicago. "There's a shortage that's now being legitimately expressed."

Sales of beans sold directly from coffee growers, who are referred to as "origin" sellers in market parlance, were expected to pressure prices with the onset of the harvest in Brazil, the world's top coffee producer. Harvest of arabica beans began in June, but got off to a late start and isn't yet in full swing.

A Central American broker said origin beans are available, but the volatile futures market is making commercial buyers skittish.

Roasters and merchants contract with "origins" such as farmer cooperatives to receive coffee at a later date. Buyers often take a short position in the futures market, which would offset some of their costs if coffee prices were to then fall.

Origin sellers may want to fix prices to sell the crop, but the risks to commercial traders of getting involved in such a volatile environment outweigh the benefit, said the broker, who spoke on the condition of anonymity because he wasn't authorized to speak with the press.

This shortage of participants willing to take short positions means prices may need to go higher before a solid ceiling emerges.

Aside from the risk of losing money in the volatile market, higher margin requirements are pushing some to the sidelines and adding to the volatility.

ICE on Thursday raised its initial margin requirement for coffee hedging by $150 to $3,150 per 37,500-pound contract. Others suggest the magnitude of fund buying is simply overpowering pressure from commercial sales.

A concurrent rally on robusta coffee futures traded on Euronext's NYSE Liffe exchange in London added fuel to the fire. July robusta futures there recently ended $71, or 4.6%, higher at $1,622 a ton. The market rallied 7% at its peak during Thursday's session.

ICE arabica prices eased from intraday highs as traders took profits. That selling could intensify, particularly ahead of the weekend and the July 4 holiday in the U.S., said Sterling Smith, a market analyst at Country Hedging in St. Paul, Minn.

Analysts warn that any indication of a pullback in prices could spark a massive selloff, while a move higher will fuel more buying.

"When coffee begins to make a move like this, we need to be wary," said Smith.

ICE coffee warehouse stocks decreased by 1,435 60-kilogram bags Thursday to total 2.5 million bags, according to exchange data.

ICE coffee open interest--the number of active positions left at the end of the session--increased by 1,554 lots Wednesday to total 163,140 lots, according to exchange data.

Volume was estimated at 29,430 lots, according to exchange data. In options, approximately 15,581 calls and 12,295 put options traded.

ICE Change Range
Jly $1.6675 +8.15c $1.6015-$1.7500
Sep $1.6875 +8.25c $1.6050-$1.7650


-By Holly Henschen, Dow Jones Newswires; 212-416-2138;
holly.henschen@dowjones.com


(END) Dow Jones Newswires

23/06: Slips; Rally Pauses, Traders Take Profits

NEW YORK (Dow Jones)--Coffee prices ticked lower Wednesday as speculative fund traders took profits and scanned the horizon for the market's next move.

Nearby coffee for July delivery ended down 0.50 cent, or 0.3%, at $1.5860 a pound on ICE Futures U.S. Most-active September coffee settled 0.25 cent, or 0.2%, lower at $1.6050 a pound.

Despite losses this week, coffee prices have risen 19% in the last two weeks. Internal market momentum pushed prices higher behind a rally in London's Euronext NYSE Liffe market. The action attracted large speculators, such as banks and hedge funds, who saw the large move as a trading opportunity. Before the rally, coffee prices had held within a band of nearly 10 cents for much of 2010. Prices had underlying support from the scarcity of high-quality arabica beans after two years of poor harvest in Colombia and Central America. But a bumper crop expected from Brazil kept a lid on prices.

Now traders are calculating their next moves as prices aren't falling back as quickly as had been expected.

"The cards are in the funds' hands and they're easing out of positions," said Luis Rangel, vice president of commodity derivatives at ICAP Futures in Jersey City, N.J.

At the height of the rally, traders suggested that bean sales from Brazil's producers would kick prices lower as the upswing fizzled.

However, that point of sales may be three to four weeks away as the arabica harvest, which typically begins in June, got off to a late start this season, Rangel said. Roaster buying is unlikely to surface until September approaches $1.50, Rangel said. A less-supportive macroeconomic picture could trigger more fund sales, he noted.

However, some traders read coffee's staying power at high levels as an indicator of potential bullish activity.

"This is still a healthy corrective move--no big damage here," said a coffee broker based in Central America.

Brazil's incoming crop may total 55.3 million 60-kilogram bags, a large chunk of the 139.5 million record output figure estimated by the U.S. Department of Agriculture. World consumption is expected to reach only 131.5 million bags in the same time frame, the USDA said. However, Brazil's arabica production is pegged at 41.8 million bags. Only about 10% of those beans are likely to meet the high quality standards that are expected from Colombian and Central American coffees.

ICE coffee warehouse stocks decreased by 3,625 60-kilogram bags Wednesday to total 2.248 million bags, according to exchange data.

ICE coffee open interest--the number of active positions left at the end of the session--increased by 1,910 lots Tuesday to total 161,586 lots, according to exchange data.

Volume was estimated at 18,668 lots, according to exchange data. In options, approximately 5,517 calls and 6,452 put options traded on the floor.

ICE Change Range Liffe Change
Jly $1.5860 -0.50c $1.5750-$1.5985 Jly $1,551 +19
Sep $1.6050 -0.25c $1.5885-$1.6145 Sep $1,580 +11


-By Holly Henschen, Dow Jones Newswires; 212-416-2138 begin_of_the_skype_highlighting 212-416-2138 end_of_the_skype_highlighting;
holly.henschen@dowjones.com


(END) Dow Jones Newswires

06-23-10 1521ET

Copyright (c) 2010 Dow Jones & Company, Inc.

15:21 062310

22/06: Consolidates As Traders Await Decisive Move

Coffee prices were little changed Tuesday as light producer selling met speculative fund buying on the back of a sizeable rally.

Nearby coffee for July delivery ended 0.15 cent, or 0.1%, higher at $1.5910 a pound on ICE Futures U.S. The most-active September contract settled 0.05 cent, or 0.03% lower at $1.6075 a pound.

Within the last two weeks, coffee prices have broken out of a tight 10- cent range the market held for most of 2010. Dwindling coffee supplies after two years of poor harvests in Colombia and Central America supported prices while expectations for a bumper crop capped gains. In the last three weeks, internal trading activity triggered buying that led futures to 27-month highs Friday.

Now the market, known for its volatility, is treading water as traders await a decisive move from either speculative funds, like banks and hedge funds, or producers in Brazil, who sell contracts to hedge physical beans.

"Every week that passes, more coffee will be ready to be sold in Brazil, and farmers will not wait to sell if prices remain where they are," said Rodrigo Costa, vice president of institutional sales at Newedge USA in New York.

Brazil's incoming 2010-11 coffee crop is forecast at a record 55.3 million bags with 41.8 million bags of arabica beans. An estimated 10% of those arabica beans are expected to be of the high-quality washed beans that parallel ICE coffee specifications.

"My bias is still to the downside in this market," said Boyd Cruel, senior softs analyst at Vision Financial Markets in Chicago. "Brazil's crop is still expected to be large."

A September close below $1.58 would indicate a decline toward $1.5540, a technical analyst said. If the contract settled above 163.50, however, it could go on to test $1.6550.

ICE coffee warehouse stocks increased by 1,451 60-kilogram bags Tuesday to total 2.51 million bags, according to exchange data.

ICE coffee open interest--the number of active positions left at the end of the session--increased by 394 lots Monday to total 159,676 lots, according to exchange data.

Volume was estimated at 18,817 lots, according to exchange data. In options, approximately 4,189 calls and 8,858 put options traded.

ICE Change Range Liffe Change
Jly $1.5910 +0.15c $1.5720-$1.6025 Jly $1,532 -$6
Sep $1.6075 -0.05c $1.5745-$1.6245 Sep $1,569 -$4

21/6: Storm Brews Over Brazilian Beans; Prices Slip

NEW YORK (Dow Jones)--Move over, Juan Valdez. A conflict is brewing over Brazil's role in global coffee markets.

Poor weather and pests have hit sought-after Colombian coffee beans, symbolized by the iconic Juan Valdez and his mule, creating a shortage that has propelled coffee futures prices 19% since June 7.

Brazilian growers, however, are stepping in to fill the gap. Brazil, the world's largest coffee producer, is expected to boost output of arabica coffee beans, which are more desirable than the robusta variety, by 27% in the 2010-2011 marketing year, according to U.S. Department of Agriculture estimates published Friday.

There is a move afoot to codify Brazil's rising status as a premium supplier by allowing delivery of its beans against the ICE Futures U.S. coffee contract. ICE's coffee consultation board last week finished soliciting comments on a proposal to include Brazil's arabica beans that have been cleaned and sorted with water, rendering them "washed" or "semi-washed."

Industry groups in Colombia say that, if implemented, the proposal would dilute coffee prices on ICE futures, also known as the "C" contract.

"You would have the C contract flooded by Brazilian coffee and it would pull the price of the contract as a whole down," said Juan Esteban Orduz, president of Colombian Coffee Federation Inc. "It will be a reference more for Brazilian coffee than Central American coffee."

Brazil's coffee beans are a lower quality than beans from Central America, which is why the proposal in front of ICE's coffee board calls for a 7-9 cent discount to ICE coffee futures, which ended 0.8% lower on Monday at $1.5895 a pound. The issue has been discussed in the past but has been revived due to shortages of Colombian beans. If the ICE coffee board approves any changes, they need to be affirmed by the U.S. Commodity Futures Trading Commission.

Coffee prices reversed course Monday after touching fresh 27-month highs as tight supplies attracted new buying from speculators like hedge funds and banks in recent weeks. Analysts said the market is due for profit-taking and correction in light of the recent rally. Sales were triggered Monday when the recovering dollar made futures more expensive in other currencies. Most-active September coffee futures could correct back to $1.57 in the near term, said
Sterling Smith, market analyst at Country Hedging in St. Paul, Minn. Buying from roasters, who are likely waiting for lower prices would help the coffee market retain recent gains, a Miami-based coffee broker said.

Coffee drinkers would notice little change, as Brazilian beans have filtered into blends sold by roasters over the past several years as harvests from the South American country have grown. The current harvest is expected to be a record 55.3 million bags of both arabica and robusta coffee beans. One bag weighs 60 kilograms.

Washed coffees account for roughly 10% of Brazil's arabica production, said Gil Carlos Barabach, a coffee analyst at agricultural consultancy Safras & Mercado in Brazil. Coffee is generally produced by larger agribusiness's operations in the country compared to producers like Colombia. Brazilian producers therefore have the capacity to produce at lower costs and can ramp up the production of washed coffees to meet demand.

"Brazilian producers will strongly enter [the washed coffee market] and can dominate this market," Barabach said.

A greater supply of washed coffee would trigger wide-reaching effects for the small farmers, said Ricardo Villanueva, president of Guatemala's national coffee association, Anacafe.

Coffee is the country's main export and 50% of producers are small farmers. They could be forced to grow illegal cash crops like marijuana and coca--the main ingredient in cocaine--to supplement lower incomes from coffee, Villanueva said.

ICE coffee warehouse stocks decreased by 1,505 60-kilogram bags Monday to total 2.25 million bags, according to exchange data.

ICE coffee open interest--the number of active positions left at the end of the session--increased by 2,485 lots Friday to total 159,282 lots, according to exchange data.

Volume was estimated at 30,306 lots, according to exchange data. In options, approximately 3,442 calls and 4,985 put options traded on the floor.

ICE Change Range Liffe Change
Jly $1.5895 -1.30c $1.5610-$1.6410 $1,538 -$5
Sep $1.6080 -1.30c $1.5835-$1.6545 $1,573 +$2

21/6: Coffee Output May Reach Record Next Year on Rains, Boosting Indian Exports

Coffee production in India, the third-biggest grower in Asia, may reach a record next year as widespread rain in the main growing regions aids crop prospects, likely increasing shipments to buyers in Europe.

Output may total 300,000 to 305,000 metric tons in the year starting Oct. 1, up from 289,600 tons, Ramesh Rajah, president of the Coffee Exporters Association of India, said in a phone interview from Bangalore. The harvest may include 210,000 tons of robusta, used in instant coffee, compared with 195,000 tons this year, he said.

Record production in India, which exports nearly two-thirds of its output, may cool a 21 percent rally in robusta coffee prices in London amid a decline in global inventory of arabica variety. Arabica coffee had the biggest weekly gain since 2006 last week amid tight supplies and quality problems with the crop in Brazil, the world’s biggest grower.

“India will have a lot more coffee to export next season and I suspect it’s going to be difficult for robusta prices to sustain,” said Rajah. Robusta coffee for immediate delivery in London is trading at a discount to the futures market, he said.

Commerzbank AG echoed Rajah’s view in report last week. Arabica prices may drop to $1.45 a pound by the end of the year and robusta to $1,450 a ton after the “excessive increase” since the end of May, the bank said.

Robusta for September delivery advanced $20, or 1.3 percent, to $1,571 a ton on the Liffe Exchange on June 18. Arabica-coffee for September delivery climbed 2.7 percent to $1.621 a pound in New York, taking last week’s gain to 11 percent, the most since Jan. 6, 2006.

Excess Rain

The southern states of Karnataka and Kerala, which account for more than 90 percent of the India’s production, got normal or excess rainfall since the start of the annual monsoon season on June 1, according to the weather office.

Exports may jump at least 5 percent to 220,000 tons in the next season, Rajah said. India supplies to countries including Italy and Russia.

“Demand from Europe, by far our biggest market, has been slackening because of the economic crisis there,” Rajah said. “The contagion somehow has not hit Italy in a big way, and that is a big relief.”

Shipments jumped to 187,337 tons between Oct. 1 and June 16, 42 percent more than the 132,328 tons shipped a year earlier, the state-owned Coffee Board said on its website. Sales were worth $398 million, up from $306.6 million a year ago, it said.

India produced a record 301,200 tons of beans in the 2000- 2001 season, according to the board.

To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net.

21/06: Coffee Falls From 27-Month High on Ample Supplies Next Season;

Arabica-coffee futures fell in New York on speculation that supplies would be too plentiful next season to support prices at a 27-month high. Cocoa advanced.

Arabica futures rose 11 percent last week, the biggest such gain since 2006. Global coffee output will climb 11 percent to a record in the year starting July 1, led by gains in Brazil, the largest grower, the U.S. Department of Agriculture’s Foreign Agricultural Service said last week.

“Everything still points downward as expecting a large crop for Brazil,” said Boyd Cruel, a senior analyst at Vision Financial Markets in Chicago. There’s “nothing bullish longer term here.”

Arabica coffee for September delivery fell 1.3 cents, or 0.8 percent, to $1.608 a pound on ICE Futures U.S. in New York. Earlier, the price touched $1.6545, the highest level for a most-active contract since March 6, 2008.

Worldwide coffee output will rise to 139.7 million bags from 125.7 million a year earlier, according to the USDA’s unit. (A bag weighs 60 kilograms, or 132 pounds.)

“Whilst markets may ignore the fundamentals, supply will be coming along, and this cannot be totally ignored,” Ralph Hawes, a Sucden Financial Ltd. analyst in London, wrote in a note today.

Inventories monitored by ICE Futures U.S. have fallen 27 percent this year to the lowest level since September 2002.

“The price of arabica coffee should continue to be well supported, even if the current sharp rise is excessive,” Commerzbank AG analysts wrote in a report e-mailed today, which noted a forecast that Colombia’s output will remain below its five-year average. The South American country is the world’s second-biggest supplier of arabica beans, after Brazil.

Robusta-coffee futures for September rose $2, or 0.1 percent, to $1,573 a metric ton on London’s Liffe exchange.

In New York, cocoa futures for September delivery advanced $28, or 0.9 percent, to $2,985 a ton on ICE. On London’s Liffe, cocoa for July delivery rose 9 pounds, or 0.4 percent, to 2,465 pounds ($3,642) a ton.

To contact the reporter on this story: Elizabeth Campbell in New York at ecampbell14@bloomberg.net

Coffee, Cocoa Harvests in Indonesia May Be Delayed on Rainfall

By Claire Leow

June 17 (Bloomberg) -- Coffee and cocoa harvests in Indonesia may be delayed by heavy rainfall across southern Sumatra this week, according to a U.S.-based forecaster.

There would be “some potential harvest slowdowns” amid scattered showers, some of which would be heavy, Maryland-based MDA Information Systems Inc. said in an e-mailed statement today. The wet weather may slow cocoa pod drying, MDA said.

Indonesia, the second-largest Asian coffee producer, grows mainly robusta, with about two-thirds of the crop exported. The price of that variety, used in instant coffees and blends, has risen 21 percent this year, in part on an 18 percent jump in the seven days to June 15. The nation is also the No. 3 cocoa grower.

Indonesia may increase coffee output 5.7 percent in the year to March 31, 2011, as farmers switch from cocoa, the U.S. Department of Agriculture’s Foreign Agricultural Service said on June 1. Output may increase to 9.6 million 60-kilogram bags (576,000 tons) from 9.08 million the year before, of which 8.1 million bags would be robusta, the FAS said in a report.

Hassan Widjaja, the chairman of the Association of Indonesian Coffee Exporters, couldn’t be reached for comment by mobile phone today. Halim Razak, chairman of the Indonesian Cocoa Association, declined to comment when reached by phone in Sulawesi as he said he had no access to data while traveling.

Robusta futures in London traded today at $1,560 a metric ton after declining 0.4 percent, extending yesterday’s 0.3 percent drop. Cocoa futures have advanced 16 percent this year, and traded at $2,955 a ton today in New York.

Rains in Vietnam have been below average for the past month, MDA said. Rainfall may increase later this week in the Central Highlands, possibly aiding crop development, it said.

The Central Highlands region is the main coffee-growing region in Vietnam, the world’s largest producer after Brazil, and the biggest producer of robusta.

Weather-induced delays may add to concerns that there are “short-term difficulties, with diminished flows out of Vietnam before the flow out of Indonesia picks up,” Herve Touraine, a director at SW Commmodities Ltd., wrote in a weekly report on June 14.

Coffee exports from Vietnam fell 15 percent in the first five months of the year to 559,000 tons compared with the same period a year earlier, Touraine said.

To contact the reporter on this story: Claire Leow in Singapore at cleow@bloomberg.net

Last Updated: June 17, 2010 05:01 EDT

World Coffee Production to Rise 11%, USDA Unit Says (Update1)

By Debarati Roy

June 18 (Bloomberg) -- Global coffee production will rise 11 percent to a record in the year starting July 1, led by gains in Brazil, the biggest grower, a U.S. Department of Agriculture unit said.

Worldwide output will rise to 139.7 million bags from 125.7 million a year earlier, the USDA’s Foreign Agricultural Service said today in a report. Brazilian production will increase 23 percent to a record 55.3 million as crops enter the more- productive phase of a biennial cycle, the agency said. A bag weighs 60 kilograms (132 pounds).

This week, coffee futures in New York surged 11 percent, the most since January 2006, partly because of supply concerns in Brazil. The price for premium arabica beans reached a 27- month high. Inventories monitored by ICE Futures U.S. have dropped 27 percent this year to the lowest level since September 2002.

Vietnam, the second-largest producer, will harvest 18.7 million bags in the year starting Oct. 1, up 7 percent, the agricultural service said.

Indonesia, the third-largest grower, will harvest 9.6 million bags in the year ending March 31, up 4.9 percent from a year earlier.

Colombia, the fourth-largest, will produce 9 million bags in the year starting Oct. 1, up 9.8 percent. Output will trail the five-year average of 11.8 million as higher temperatures and dry weather crimp output, the agency said.

Consumption to Climb

Annual global consumption will rise 2.2 percent to 131.5 million bags, the service said.

Arabica coffee for September delivery rose 4.3 cents, or 2.7 percent, to $1.621 a pound today on ICE. The price reached $1.6305, the highest level since March 2008.

On London’s Liffe exchange, robusta-coffee futures for September delivery gained $20, or 1.3 percent, to $1,571 a metric ton. The price has climbed 9.3 percent in the past 12 months.

Arabica coffee is grown mainly in Latin America and brewed by specialty companies including Starbucks Corp. Robusta beans, used in instant coffee, are harvested mostly in Asia and parts of Africa.

To contact the reporter on this story: Debarati Roy in New York at droy5@bloomberg.net

Last Updated: June 18, 2010 17:19 EDT

18/06: Runs Past 2-Year High On Aggressive Buying

NEW YORK (Dow Jones)--Coffee prices rose to their highest levels in more than two years Friday as fund and roaster buying absorbed producer sales.

Nearby coffee for July delivery ended 3.90 cent, or 2.5% higher, at $1.6025 a pound on ICE Futures U.S.

Coffee prices have vaulted 20% in the last two weeks in a chain reaction that began with tight physical availability of the robusta coffee traded on NYSE's Euronext Liffe market in London. Talk that a major commodities company needed to buy its way out of positions tied to physical coffee on both sides of the Atlantic set the markets off.

The sharp and sudden move attracted interest from speculators, like banks and hedge funds, who had previously had little interest in the range-bound market. Traders warn that futures could sell off as easily as they shot up, but selling associated with coffee producers in Brazil was consumed by roasters and funds Friday.

Brazil is aggressively selling its incoming crop, but enthusiastic buying is absorbing the pressure, a coffee trader in Central America said.

Meanwhile, new beans still aren't arriving fast enough from the harvest to quench buyers' thirst this week, traders in that country said.

Brazil is the world's top coffee producer and exporter. Roughly half of production is of arabica beans. But only about 10% of that is thought to be the high-quality coffee on par with Colombia and Central American varieties. Those countries are typically the leading sources of the so-called mild washed arabica beans, which are prepared for market to preserve flavor and quality. Poor harvests brought on by unfavorable weather has crimped production in those regions for the last two seasons.

The strongest weekly close since the week of March 3, 2008, will attract funds interested in buying markets that show strong trends, said Hernando de la Roche, managing director at Hencorp Becstone Futures in Miami.

ICE coffee warehouse stocks decreased by 1,500 60-kilogram bags Friday to total 2.25 million bags, according to exchange data.

ICE coffee open interest--the number of active positions left at the end of the session-- increased by 3,417 lots Thursday to total 156,797 lots, according to exchange data.

Volume was estimated at 33,854 lots, according to exchange data. In options, approximately 7,215 calls and 7,421 put options traded on the floor.

ICE Change Range Liffe Change
July $1.6025 +3.90c $1.5410-$1.6085 $1,543 + 3
Sept $1.6210 +4.30c $1.5540-$1.6305 $1,571 +20


-By Holly Henschen, Dow Jones Newswires; 212-416-2138;
holly.henschen@dowjones.com


(END) Dow Jones Newswires

06-18-10 1505ET

Copyright (c) 2010 Dow Jones & Company, Inc.

15:05 061810

Dry weather to lift Colombia coffee harvest by 25% Colombia is poised to regain third place among coffee producers with a 25% jump in output, as the

Colombia is poised to regain third place among coffee producers with a 25% jump in output, as the benefits of a drier start to the year feed into higher yields.

The South American country's coffee harvest will hit 11m bags in 2010-11, recovering towards historic levels after two seasons when plantations were damaged by poor conditions blamed largely on the El Nino weather pattern.

"Better weather conditions in 2010 have allowed coffee tree to receive more daylight, resulting in better flowering, which indicates that coffee yields will improve," a report from the US Department of Agriculture's Bogota bureau said.

The conditions, coupled with greater use of fertilizer, would also "facilitate the ripening of the beans".

The production revival, which took hold in April, will accelerate into the end of the calendar year, the briefing said, favouring in particular the 2010-11 season, which starts in October.

Overtaken

Indeed, output in the current 2009-10 season would show only marginal improvement on the 8.66m bags recorded the previous season – the lowest figure in 33 years.

Colombia coffee forecasts 2010-11 (year-on-year change) Area planted: 780,000 hectares (unch) Area harvested: 640,000 hectares (unch) Production: 11.0m bags (+25%) Imports: 600,000 bags (-18.9%) Exports: 9.2m bags (+13.6%) Domestic use: 1.20m bags (unchanged) Year-end stocks: 499,000 bags (+67%) Source: USDA attache report

"The damage done by strong rains, and the increased humidity which created a greater-than-usual struggle with coffee rust… caused production to decrease dramatically," the report said.

The decline has seen Colombia overtaken by Indonesia for third place in the coffee production table, although this position should be reversed in 2010-11, assuming the briefing's estimates are correct.

Colombia has maintained its pace as the world's third-ranked bean exporter helped by local diffidence to drinking coffee, relative to other producing nations.

The country's consumption of 1.87kg of coffee per head is half of that in Honduras, and less than one-third of that in Brazil, the top producer of the bean.

Colombia's exports will rise by 15.2% to 10.2m bags in 2010-11.

Colombia is poised to regain third place among coffee producers with a 25% jump in output, as the benefits of a drier start to the year feed into higher yields.

The South American country's coffee harvest will hit 11m bags in 2010-11, recovering towards historic levels after two seasons when plantations were damaged by poor conditions blamed largely on the El Nino weather pattern.

"Better weather conditions in 2010 have allowed coffee tree to receive more daylight, resulting in better flowering, which indicates that coffee yields will improve," a report from the US Department of Agriculture's Bogota bureau said.

The conditions, coupled with greater use of fertilizer, would also "facilitate the ripening of the beans".

The production revival, which took hold in April, will accelerate into the end of the calendar year, the briefing said, favouring in particular the 2010-11 season, which starts in October.

Overtaken

Indeed, output in the current 2009-10 season would show only marginal improvement on the 8.66m bags recorded the previous season – the lowest figure in 33 years.

Colombia coffee forecasts 2010-11 (year-on-year change) Area planted: 780,000 hectares (unch) Area harvested: 640,000 hectares (unch) Production: 11.0m bags (+25%) Imports: 600,000 bags (-18.9%) Exports: 9.2m bags (+13.6%) Domestic use: 1.20m bags (unchanged) Year-end stocks: 499,000 bags (+67%) Source: USDA attache report

"The damage done by strong rains, and the increased humidity which created a greater-than-usual struggle with coffee rust… caused production to decrease dramatically," the report said.

The decline has seen Colombia overtaken by Indonesia for third place in the coffee production table, although this position should be reversed in 2010-11, assuming the briefing's estimates are correct.

Colombia has maintained its pace as the world's third-ranked bean exporter helped by local diffidence to drinking coffee, relative to other producing nations.

The country's consumption of 1.87kg of coffee per head is half of that in Honduras, and less than one-third of that in Brazil, the top producer of the bean.

Colombia's exports will rise by 15.2% to 10.2m bags in 2010-11.

17/06: Falls In Correction; Traders Uncertain

DJ ICE Coffee Review: Falls In Correction; Traders Uncertain NEW YORK (Dow Jones)--Coffee prices slipped for the first time in eight sessions Thursday as traders paused to plot their next moves in the wake of a 17.5% rally.

Nearby coffee for July delivery ended 2.40 cents, or 1.5%, lower at $1.5635 a pound on ICE Futures U.S.

Coffee prices hit their highest levels in more than two years Tuesday. The initial jolt was sparked by commercial short covering, or buying to exit the obligation to sell coffee. Those gains attracted speculative fund buyers, like banks and hedge funds, who were following bullish technical cues. Prior to this rally, the coffee market had traded sideways between $1.30-$1.40 since January. Prices have found support from extremely low availability of high-quality arabica beans after two years of poor harvests in Central America and Colombia. But expectations of a bumper crop from Brazil, the world's top coffee producer, have kept a lid on coffee prices.

Traders stepped back from the excitement to assess the situation. Analysts said Brazilian coffee producers are likely to sell if they see the rally is wearing down. Those sales would signal to funds that more losses are in store, activating more sales.

"The more that we see this consolidating pattern, the more likely we are to see this coffee market come back to earth," a Chicago-based broker and analyst said.

However, after the surprise rally, there's no telling the next move for the coffee market.

"It's still anybody's guess as the where the market could go if funds continue to buy," said Marcio Bernardo, a coffee broker and analyst at Newedge US in New York. "If funds buy another 20,000 [or] 30,000 lots, they can take this thing up another 10 or 20 cents."

Tightness in the cash coffee market has underpinned prices for more than a year. Traders are paying close attention to the pace of harvest in Brazil. Though nearly half of the country's crop is arabica beans, traders estimate only 10% of those are of high enough quality to parallel the beans from Central America and Colombia. Harvests in those countries occur during the fall.

In the near term, the coffee market is due for a correction back to $1.50, which presents a good buying opportunity, a coffee trader in Central America said.

The trader noted Brazil's June coffee exports are dow compared to last month, an indication that shipments may not pick up as expected.

Brazil's green coffee exports totaled 511,858 60-kilogram bags in the week to June 16, compared with 1.027 million bags for the same period in May, according to the country's Green Coffee Exporters Council, or Cecafe.

Bernardo noted that trade was somewhat light earlier in the month, so end-of-the-month figures will be more representative of trade.

ICE coffee warehouse stocks decreased by 1,695 60-kilogram bags Thursday to total 2.25 million bags, according to exchange data.

ICE coffee open interest--the number of active positions left at the end of the session--increased by 2,163 lots Wednesday to total 153,380 lots, according to exchange data.

Volume was estimated at 35,314 lots, according to exchange data. In options, approximately 4,574 calls and 4,862 put options traded.

ICE Change Range Liffe Change
Jly $1.5635 -2.40c $1.5540-$1.5970 $1,540 -$23
Sep $1.5780 +210 pts $1.5665-$1.6090 $1,551 -$15


-By Holly Henschen, Dow Jones Newswires; 212-416-2138 begin_of_the_skype_highlighting 212-416-2138 end_of_the_skype_highlighting;
holly.henschen@dowjones.com

Colombia Coffee Growers Urge Halt to ICE Plan for Brazil Beans

By Debarati Roy and Katia Cortes

June 16 (Bloomberg) -- Coffee growers in Colombia, the world’s third-largest producer, urged ICE Futures U.S. to ditch plans to change the benchmark contract for the commodity to allow beans from Brazil to satisfy delivery obligations.

Adding coffee from Brazil, the largest grower, to the list of acceptable supplies would compound pricing discrepancies and concerns about the quality of exchange inventories, according to a June 9 letter from the National Federation of Coffee Growers of Colombia to New York-based ICE Futures that was obtained by Bloomberg.

The change “would be detrimental to the integrity” of the New York futures contract and “is not in the best interest of the global coffee market,” Luis Genaro Munoz, the federation’s chief executive officer, said in the letter. Edgar Cordero, an executive vice president for the Colombian organization in New York, confirmed the letter today, declining further comment.

Brazil isn’t among the 19 arabica-coffee producers whose beans are used to satisfy the ICE contract, which allows deliveries to exchange-licensed warehouse in the ports of New York, New Orleans, Houston, Miami, Bremen/Hamburg, Antwerp and Barcelona. The exchange said last month it may expand the list to include Brazilian varieties.

“No decision on Brazil has been made at this point, and any decision on Brazil would have no bearing on Colombia’s deliverable status,” Tim Barry, a vice president at the ICE Futures, said today by e-mail.

Colombia is the second-largest grower of arabica beans favored by specialty coffee retailers, including Starbucks Corp. Brazil, the top arabica grower, is the second-largest producer of robusta beans used in instant coffee and harvested mostly in Asia and parts of Africa. Vietnam is the biggest robusta grower.

Price Differential

Colombian and Central American coffees used by the exchange have a “substantial and long-lasting differential” in price and quality from Brazilian supplies, Munoz said in his letter.

The spread between Colombian and Brazilian prices widened to 80 cents a pound in March from an average of 62 cents last year and 15 cents in the period from 2000 to 2008, Munoz said. Coffee futures for September delivery closed today in New York at $1.596 a pound, up 28 percent from a year ago.

There also is concern that washed and semi-washed Brazilian coffee deteriorates faster than Colombian beans, which would require a new discounting mechanism for supplies from ICE warehouses and new quality specifications, he said.

Brazil Wants Change

Producers in Brazil want ICE to move ahead with changes in the New York contract, according to Guilherme Braga, the general director of the Brazilian Coffee Exporters Council.

The move “would help Brazil’s coffee have a better international image for its quality,” Braga said today by telephone from Sao Paulo. “It would even help us have more access to specialty coffee markets.”

The countries whose beans are acceptable under the current ICE contract including Mexico, El Salvador, Guatemala, Costa Rica, Nicaragua, Kenya, New Guinea, Panama, Tanzania, Uganda, Honduras and Peru, according to the exchange. Premiums are charged for supplies from Colombia, and discounts are imposed for arabica from Burundi, Venezuela, India, Rwanda, the Dominican Republic and Ecuador.

Colombian production will rise to about 4.5 million bags in the first six months of the year, compared with 4.24 million bags a year earlier, the federation said last month. The harvest this year will total 10 million to 11 million bags, up from a 33-year low of 7.8 million in 2009, the growers said. A bag weighs 60 kilograms or 132 pounds.

Coffee Falls From Two-Year High; Cotton Rises; Cocoa Slips

By Yi Tian and Elizabeth Campbell

June 16 (Bloomberg) -- Arabica-coffee futures fell from the highest price in more than two years on speculation that the bean’s six-session rally was overdone. Cotton advanced, while cocoa declined.

Coffee output by Brazil, the world’s largest producer, will rise 23 percent in the year starting July 1, according to a unit of the U.S. Department of Agriculture. Through yesterday, arabica coffee jumped 20 percent since June 7. Earlier, prices reached $1.6295 a pound, the highest level since March 6, 2008.

“The timing of the current rally is wrong,” Kona Haque, a London-based analyst with Macquarie Group Ltd., said in a report e-mailed today. “With the upcoming harvest, producers will be selling heavily at these prices and look to hedge.”

Arabica coffee for September delivery slipped 0.35 cent, or 0.2 percent, to $1.596 a pound on ICE Futures U.S. in New York. On London’s Liffe exchange, robusta-coffee futures for September delivery dropped $4, or 0.3 percent, to $1,566 a metric ton.

Arabica futures will retreat to $1.50 by July, Haque said.

“This rally that we’ve seen here in the last week is overdone,” said Boyd Cruel, a senior analyst at Vision Financial Markets in Chicago. “With the volatility being so high, you don’t really get a rational market. The market’s overbought.”

Cotton futures for December delivery gained 0.08 cent, or 0.1 percent, to 79.7 cents a pound on ICE. The fiber has climbed 5.4 percent this year.

In New York, cocoa for September delivery fell $14, or 0.5 percent, to $2,955 a ton. In London, cocoa for July delivery dropped 34 pounds, or 1.4 percent, to 2,430 pounds ($3,599) a ton on Liffe.

To contact the reporters on this story: Yi Tian in New York at mshankar@bloomberg.net; Elizabeth Campbell in New York at ecampbell14@bloomberg.net

16/05: Hits Two-Year High Before Late-Day Pullback

NEW YORK (Dow Jones)--The coffee market is caught in a game of chicken near two-year highs as speculators pause for lower prices to buy while bean producers hold out to sell at higher levels.

Nearby July coffee settled 0.60 cent, or 0.4%, lower at $1.5875 a pound on ICE Futures U.S. The contract hit $1.6225 during the session--the strongest price for a nearby contract since March 6, 2008. Coffee prices have rallied 20% since June 7 in a chain reaction of buying amid tight supplies, technical cues and general market-specific fervor that several analysts have referred to as "perfect storm" conditions. The market barely moved 10 cents in two months, and
then shot up 26 cents in six days.

Now traders are on the edge of their seats for the next clue to the market's direction.

"You have a very quiet, uneasy consolidation," said Luis Rangel, vice president for commodities derivatives at ICAP Futures in Jersey City, N.J. "The market's very gun-shy here."

Several market participants said coffee's jump was sparked last week by a big agricultural trading house. The firm held short positions in the U.S market, as well as on London's NYSE Euronext's Liffe, to lock in prices for the coffee it promised to deliver to roasters. The firm then decided to buy those offerings back to erase their responsibility to deliver beans. This set off a chain reaction among speculative investors who were betting that prices would fall further. They, too, were forced to buy to cut their losses. At the same time, the sharp spike attracted buying from bullish traders who anticipated prices would continue their move higher.

The move comes against a backdrop of depleted world stockpiles. Global stockpiles of both premium arabica and cheaper robusta beans, grown in countries such as Vietnam, are falling. Earlier this month, the International Coffee Organization revised down its forecast for world coffee output in the 2009-10 season by 1.1% to 120.6 million bags, each weighing 60 kilograms, due to disappointing harvests in Africa, Central America and Mexico. Consumption is pegged at 134 million bags.

Coffee futures held in a 10-cent range since January as traders expected a bumper crop from Brazil to alleviate the tight supplies of the high quality mild washed arabica beans traded on ICE. Those beans have been in increasingly short supply for nearly two years after back-to-back El Nino-related weather events stymied harvests in Colombia, Central America and Mexico.

Brazil is the world's largest coffee producer and No. 2 consumer behind the U.S. The coffee crop for the year ending June 2011 is forecast to be 23% higher at 55.3 million bags, according to a U.S. Department of Agriculture report.

Some industry estimates peg production at as high as 60 million bags. Roughly half of those beans are arabica, but industry members estimate only about 10% of them qualify as the high-grade "washed" variety that is demanded for premium blends.

"The low-quality nature of the current Brazilian coffee crop harvest is not going to be able to alleviate the extreme scarcity of high-quality, mild washed arabica," said Shawn Hackett in the Hackett Money Flow Report.

The futures market reflects this tightness as coffee contracts have slipped into "backwardation." Typically prices for delivery in the future are higher due to the risk associated with obtaining them, as well as storage costs for the beans. However, December coffee prices are stronger than March 2011 futures, and September is higher than July. This shows that end users of coffee are willing to pay more to quickly buy the beans rather than wait to see if prices back off.

June 22 is the first notice day for delivery of physical coffee against July coffee futures. At this point, traders can buy or sell contracts until July 20--the last trading day--to deliver or receive physical coffee from exchange stocks as their contracts dictate. The exchange listed 2.26 million 60-kilogram bags of coffee in its stocks Tuesday, down from 3.66 million bags at this time last year.

Given the scenario, it wouldn't be surprising to see end users take delivery of exchange coffee, as availability is low, Rangel said. One contract is equivalent to 37,500 pound of beans, worth $59,765 in total using Tuesday's close as an estimate. Due to higher prices on the cash market, ICE coffee stocks have been dwindling. Some analysts note the high-quality arabica beans are likely a few years old.

A sudden correction could occur if traders decide to take partial profits, Hackett said in the letter.

"It's gotten a bit ahead of itself," Rangel said. "An 18% move in three days is statistically an extreme."

Futures could correct back to the $1.40, which was breakout point for the rally, Rangel said.

ICE coffee warehouse stocks decreased by 5,936 60-kilogram bags Wednesday to total 2.25 million bags, according to exchange data.

ICE coffee open interest--the number of active positions left at the end of the session--increased by 1,145 lots Tuesday to total 151,217 lots, according to exchange data.

Volume was estimated at 38,274 lots, according to exchange data. In options,
approximately 13,120 calls and 10,312 put options traded.

ICE Change Range Liffe
Jly $1.5875 +0.60c $1.5665-$1.6225 $1,563 +$12
Sep $1.5960 +0.35c $1.5760-$1.6295 $1,566 -$ 4


-By Holly Henschen, Dow Jones Newswires; 212-416-2138;
holly.henschen@dowjones.com


(END) Dow Jones Newswires

06-16-10 1458ET

Copyright (c) 2010 Dow Jones & Company, Inc.

US May Green Coffee Stks Up 28,154 Bags To 4.569M Bags

Jun 15, 2010 (Dow Jones Commodities News via Comtex) --

Total exchange
                     and non-exchange       Difference

                     May 31      Apr 30
Total New York         1,386,949   1,363,887        23,062
Total New Orleans      1,193,848   1,284,293       -90,445
Total Jacksonville       166,567     178,000       -11,433
Total Miami              240,883     238,295         2,588
Total Houston            745,368     704,789        40,579
Total Laredo             106,511     111,948        -5,437
Total San Francisco      353,033     322,828        30,205
Total Los Angeles              0           0             0
Total Norfolk            188,079     175,642        12,437
Total Port Everglades          0           0             0
Total Philadelphia         3,405       1,275         2,130
Total Seattle/Tacoma      71,420      54,137        17,283
Total Los Angeles/Long   106,913      98,038         8,875
Total Baltimore            5,677       7,367        -1,690
U.S.                   4,568,653   4,540,499        28,154

The data furnished is derived from the local warehousemen
in the listed port areas. The compilation has been made
by the Green Coffee Association, Inc which has no reason
to believe the data is not reasonably accurate, but no
assurance is given or representation made as to the
accuracy or completeness of all or any of the material.


-By Linda Rice; Dow Jones Newswires; 913-322-5173;
csstat@dowjones.com

(END) Dow Jones Newswires