NEW YORK (Dow Jones)--Coffee prices dropped 4% Tuesday as speculative fund traders took profits against a backdrop of bearish economic sentiment.
Nearby coffee for July delivery ended 6.80 cents, or 4%, lower at $1.5550 a pound on ICE Futures U.S., the lowest levels in 19 days. Most actively traded September coffee settled 6.65 cents, or 3%, lower at $1.5765.
Coffee prices corrected Tuesday after rallying nearly 25% in mid June. Short supplies of high-quality beans prompted gains which attracted the interest speculative traders, whose primary business is not in physical coffee. However, a lack of follow-through strength has led some investors to second-guess their positions in coffee by selling to avoid further losses.
Coffee got a running start in Tuesday's bearish session. While ICE trading was closed in observance of the July 4 holiday, NYSE Liffe robusta coffee futures fell 2%. Pre-set orders to sell, or stops, were triggered when ICE September coffee breeched $1.60.
"The coffee balloon may be ready to deflate," said Sterling Smith, a market analyst at Country Hedging in St. Paul, Minn.
The U.S. Department of Agriculture recently projected a record world coffee crop in the coming season. Production is pegged 6% higher than demand at 139.5 million 60-kilogram bags. The total crop from Brazil, the world's top producer, is seen at 55.3 million bags. Brazil is currently harvesting the crop. No sizeable fresh supplies of high-quality beans will be available until the late-fall harvest from Central America and Colombia. Supplies from those countries are short following two seasons of poor harvests amid unfavorable weather.
Brazilian coffee sellers may pressure the futures market if prices hold near current levels, said Rodrigo Costa, vice president of institutional sales at Newedge USA in New York.
Selling has been relatively light from Brazil at this point in their season. Much of Brazil's incoming bumper crop does not meet the quality standards of coffee traded on ICE.
Generally pessimistic market sentiment also dragged U.S. equities, the ollar and many commodities lower during the session. The most recent installment of disappointing economic data showed slower-than-expected U.S. service-sector growth in June.
Analysts said September coffee futures have support on technical charts near $1.5740 and $1.5750.
"As long as it's above [that level], we might consider [these losses] a correction from the higher move that we saw in June," Costa said.
ICE coffee warehouse stocks decreased by 7,487 60-kilogram bags Tuesday to total 2.193 million bags, according to exchange data.
ICE coffee open interest--the number of active positions left at the end of the session--increased by 2,649 lots Friday to total 169,812 lots, according to exchange data.
Volume was estimated at 21,217 lots, according to exchange data. In options, approximately 5,789 calls and 4,111 put options traded.
ICE Change Range Liffe Change
Jly $1.5550 -6.80c $1.5500-$1.6100 Jly $1,625 -$63
Sep $1.5765 -6.65c $1.5685-$1.6350 Sep $1,650 -$60
-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
07-06-10 1502ET
Copyright (c) 2010 Dow Jones & Company, Inc.
Nearby coffee for July delivery ended 6.80 cents, or 4%, lower at $1.5550 a pound on ICE Futures U.S., the lowest levels in 19 days. Most actively traded September coffee settled 6.65 cents, or 3%, lower at $1.5765.
Coffee prices corrected Tuesday after rallying nearly 25% in mid June. Short supplies of high-quality beans prompted gains which attracted the interest speculative traders, whose primary business is not in physical coffee. However, a lack of follow-through strength has led some investors to second-guess their positions in coffee by selling to avoid further losses.
Coffee got a running start in Tuesday's bearish session. While ICE trading was closed in observance of the July 4 holiday, NYSE Liffe robusta coffee futures fell 2%. Pre-set orders to sell, or stops, were triggered when ICE September coffee breeched $1.60.
"The coffee balloon may be ready to deflate," said Sterling Smith, a market analyst at Country Hedging in St. Paul, Minn.
The U.S. Department of Agriculture recently projected a record world coffee crop in the coming season. Production is pegged 6% higher than demand at 139.5 million 60-kilogram bags. The total crop from Brazil, the world's top producer, is seen at 55.3 million bags. Brazil is currently harvesting the crop. No sizeable fresh supplies of high-quality beans will be available until the late-fall harvest from Central America and Colombia. Supplies from those countries are short following two seasons of poor harvests amid unfavorable weather.
Brazilian coffee sellers may pressure the futures market if prices hold near current levels, said Rodrigo Costa, vice president of institutional sales at Newedge USA in New York.
Selling has been relatively light from Brazil at this point in their season. Much of Brazil's incoming bumper crop does not meet the quality standards of coffee traded on ICE.
Generally pessimistic market sentiment also dragged U.S. equities, the ollar and many commodities lower during the session. The most recent installment of disappointing economic data showed slower-than-expected U.S. service-sector growth in June.
Analysts said September coffee futures have support on technical charts near $1.5740 and $1.5750.
"As long as it's above [that level], we might consider [these losses] a correction from the higher move that we saw in June," Costa said.
ICE coffee warehouse stocks decreased by 7,487 60-kilogram bags Tuesday to total 2.193 million bags, according to exchange data.
ICE coffee open interest--the number of active positions left at the end of the session--increased by 2,649 lots Friday to total 169,812 lots, according to exchange data.
Volume was estimated at 21,217 lots, according to exchange data. In options, approximately 5,789 calls and 4,111 put options traded.
ICE Change Range Liffe Change
Jly $1.5550 -6.80c $1.5500-$1.6100 Jly $1,625 -$63
Sep $1.5765 -6.65c $1.5685-$1.6350 Sep $1,650 -$60
-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
07-06-10 1502ET
Copyright (c) 2010 Dow Jones & Company, Inc.
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