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

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Friday, 02 July 2010 15:13:40RTRS [nLDE6610MA] {EN}ENDS

02/07: Down On Pre-Weekend Profit Taking

DOW JONES NEWSWIRES

Arabica coffee futures fell Friday while traders took profits off of Thursday's highs and as investors received additional gloomy economic news ahead of the three-day U.S. holiday weekend.

Most active September coffee on ICE Futures U.S. in New York fell 3.95 cents, or 2.4%, to settle at $1.6430 a pound.

Thinly traded July coffee lost 3.90 cents, or 2.4%, to end at $1.6230 a pound.

Markets will be closed Monday for the Independence Day holiday and will reopen Tuesday morning.

Speculative fund selling was encouraged by poor economic news that weighed on equities and continued to fuel ideas that a recovery will be longer and harder than previously thought.

September coffee lost 2.7% this week as traders took profits after prices shot to 12-year highs and as a string of poor economic news shook investors who may have hoped the recovery would be more advanced at this stage.

U.S. nonfarm payrolls in June fell by a higher-than-expected 125,000, while adding only 83,000 private-sector jobs. U.S. factory orders fell 1.4% in May amid expectations for just a 0.8% decrease.

Considering the extremely overbought levels coffee futures had struck, the market is holding up well, despite Friday's mild setback.

"Coffee appears to be setting up a new pricing structure, with $1.57 to $1.60 being cheap coffee and $1.75 being expensive," said Sterling Smith, analyst with Country Hedging in St. Paul.

"We had a very, very spiky and intense rally in coffee that often gives way to very sudden price implosions, and thus far we've been able to avoid those," he explained.

If coffee futures can continue holding in recent ranges, it may portend additional bullishness in the near term, Smith said.

Nearby supplies of top-quality arabica coffee remain tight and continue to offer underlying price support. The harvest out of top grower Brazil continues to advance, though traders have said there are quality concerns with some of the crop. Beans being harvested in Brazil have reportedly been inferior to Central American and Colombian beans.

Still, with weather aiding the Brazilian harvest, increased producer, or origin, sales have crimped New York futures at their highs.

"There are always quality concerns with beans out of Brazil, and Brazilians themselves are becoming very large coffee consumers," said Smith.

Weather conditions are expected to continue favorable for the Brazilian coffee harvest, with no significant cold weather in sight, said Bryce Anderson, meteorologist with Telvent DTN.

Technically speaking, September coffee needs to hold above the weekly low of $1.6010 to avoid further losses. Nearby resistance is located at Thursday's high of $1.6925, then at $1.7065 and $1.7085 a pound.

London robusta coffee futures closed with minor losses, pressured by the declines in New York, after reaching new highs earlier in the session on tight origin supplies.

On Friday, ICE warehouse stocks fell 3,518 bags to total 2.2 million 60-kilogram bags, the exchange reported.

Total open interest on ICE rose 1,505 to total 167,163 lots. Just 214 contracts remained open in nearby July ahead of its July 15 expiration.

Futures volume is pegged at 18,468 contracts traded, with 3,586 calls and 5,758 put options traded.

ICE Change (cents) Range
July $1.6230 dn 3.90 $1.6230-$1.6590
Sep $1.6430 dn 3.95 $1.6375-$1.6820

Cocoa, Coffee Decline as Sluggish U.S. Economy May Cut Commodity Demand

Cocoa prices fell, capping the biggest weekly drop since mid-May, on concerns that commodity demand will slacken amid a fragile economic recovery in the U.S. Coffee also slumped.

Private employers added fewer workers to payrolls in June than forecast, a government report today showed. The report follows data indicating weakness in the housing market and sluggish manufacturing. Cocoa dropped 4.6 percent this week and is down 9.7 percent in 2010.

“I suspect that the recent slowdown in the U.S. is weighing more on the markets than perceived,” said Dennis Cajigas, a senior market strategist at brokerage MF Global Holdings Ltd. in Chicago.

Cocoa for September delivery fell $70, or 2.3 percent, to $2,971 a metric ton on ICE Futures U.S. in New York.

Arabica-coffee futures for September delivery dropped 3.95 cents, or 2.3 percent, to $1.643 a pound on ICE Futures U.S. in New York. The price declined 2.7 percent this week.

“With the economic news lately, people aren’t buying commodities,” said Jack Scoville, a vice president at Price Futures Group Inc., a broker in Chicago.

The Reuters/Jefferies CRB Index of 19 commodities fell for the second straight day and has lost 10 percent this year.

01/07: Higher On Weak Dollar, Tight Stocks

Arabica coffee for September delivery rose Thursday, supported by a falling U.S. dollar and further underpinned by declining warehouse stocks and tight physical supplies of arabica beans.

Most-active September coffee added 2.40 cents, or 1.5%, to settle at $1.6825 pound on ICE Futures U.S. Thinly traded nearby July rose 2 cents, or 1.2%, to $1.6620 a pound.

September coffee has risen 5.1% since making a weekly low Tuesday of $1.6010 a pound. Some traders believe recent losses were overdone, sparking a technical price rebound. Bulls point to ongoing tight physical supplies of top-quality arabica beans, falling warehouse stocks and a weak U.S. dollar. Bears argue that Brazilian new-crop coffee is flowing into the market and is beginning to loosen the supply situation.

Top grower Brazil is expected to boost arabica production by 27% in 2010-11. Recent rallies have been crimped in part by origin, or producer selling, a sign that the large Brazilian harvest is influencing the market. Central American and Colombian beans are beginning to trickle in but won't be available on a widespread basis until the fall.

Still, "there's still no old-crop coffee, and the new crop in parts of Central America at least seems to be moving out pretty fast," said Jack Scoville, analyst and vice president at Price Futures Group in Chicago.

Traders are concerned about the quality of the arabica beans coming out of Brazil, as most of the crop being picked is inferior to that of Central America and Colombia.

Coffee futures also found support from a crumbling dollar linked to dour economic news.

A 30% plunge in pending U.S. home sales in May and a surprising increase of 13,000 in U.S. weekly jobless claims pressured both equities and the dollar. A worse-than-expected decline in the Institute for Supply Management's June manufacturing index to 56.2, from 59.7 in May, added to the economic worries.

Traders had previously bought the greenback as a safe-haven play during times of economic weakness, but Thursday's decline may have marked a shift in psychology. Traders are now concerned that the economy may slip into double-dip recession or that the malaise could lead to deflation, pressuring the dollar.

ICE warehouse stocks fell 9,122 bags to total 2.204 million bags, according to the exchange.

Open interest--the number of contracts outstanding between traders at the prior day's close--rose 248 contracts to total 165,658 contracts, ICE reported.

Futures volume is estimated at 23,063 contracts, with 10,794 calls and 5,585 put options traded.

ICE Change Range

July $1.6620 up 2.00c $1.6370-$1.6620

Sep $1.6825 up 2.40c $1.6420-$1.6925

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