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
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
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