BULLMAN MACRO FUND PLANS TO TAKE SHORT POSITION ON ARABICA MARKET AT AROUND 172 CENTS/LB

By Sarah McFarlane

LONDON, July 2 (Reuters) - ICE arabica coffee, near 12-year highs after a blistering rally, is looking overbought and a correction could see prices shed 5 percent to trade around 158 cents a lb, hedge fund Bullman Investment Management says.

Nick Bullman, managing partner of the fund, said that although it does not currently hold a position in the arabica market, the fund plans to take a short position if the benchmark September contract rises to around 172 cents.

Prices stood at 164.90 cents by 1213 GMT.

Bullman Investment Management, a macro hedge fund with less than $100 million under management, had around 30 percent of its funds allocated to agricultural commodities in June.

"If you look at the assets which have done well year to date it's commodities like gold, treasury as a flight to safety, and some agricultural commodities," said Bullman.

"There's always demand for sugar and coffee. When you look at soft commodities they're very risk protective assets because there's always going to be a demand."

Bullman said macro funds have rotated money around the commodity and currency markets in 2010 as few assets are "working" for funds this year.

CAFFEINE HIGH

New York-traded ICE arabica coffee prices hit a 12-year high at 176.50 cents in June after a short-covering rally in London robusta coffee triggered fund buying in both the London and New York coffee markets.

Coffee and sugar have seen some of the biggest moves in the commodities complex so far in 2010, with arabica coffee rising around 20 percent year-to-date and sugar prices nearly halving from their February peak of over 30 cents a lb.

Heavy losses in sugar futures were triggered by an improved supply outlook, with 2010/11 forecast to see the first global sugar surplus following several years of demand outstripping production.

Coffee fundamentals remain unchanged, with a record crop expected from Brazil.

"Nothing has changed which would drive prices upwards. The only risk in adding short positions is the momentum has been strong on the upside," said Bullman.

"If you look at the change in non-commercial open interest it's clear hedge funds have been investing," he added.

Money managers, which include hedge funds, increased their net long positions in arabica coffee futures contracts traded on ICE Futures U.S. by 57 percent in the week ending June 22.
[ID:nN25574346]

"Macro funds are rotating through various asset classes as they become over valued or undervalued and coffee had become undervalued," said Bullman.

"Is there a possibility funds are going to rotate back out of it? Yes, absolutely." (Reporting by Sarah McFarlane; Editing by Veronica Brown and Sue Thomas)

((sarah.mcfarlane@thomsonreuters.com ; +44 207 542 5937; Reuters Messaging: sarah.mcfarlane.reuters.com@reuters.net ))
Keywords: COFFEE/BULLMAN

For Related News, Double Click on one of these codes:[C] [MTL] [GRO] [SOF] [RINVM] [M] [T] [SFTS] [COF] [INV] [DRV] [FUND] [SUG] [COM] [GRA] [AGRI] [LEN] [RTRS]
Friday, 02 July 2010 15:13:40RTRS [nLDE6610MA] {EN}ENDS