DJ ICE Coffee Review: Firmer On Weak Dollar, Tight Cash Market

U.S. coffee futures ended firmer Thursday as the market recovered from a weaker opening. Fund and speculative buying supported ICE coffee futures Thursday and pushed the July contract near its eight-month high scored on Wednesday.

The overall technical picture remains strong and analysts said tight physical supplies were underpinning the futures market as well.ICE July coffee closed up 130 points at $1.3680 a pound. « We are seeing some fund buying in the market, » noted Rodrigo Costa, coffee analyst at Newedge. « There is a lack of selling because of the tightness of coffee in Central America and Columbia, » he added.

Costa noted that Brazil, a major coffee producer, was just beginning its harvest. « We still don’t see good availability in the physical market, » he explained. Fresh weakness in the U.S. dollar Thursday also supported the coffee market. « The weak dollar has been a strong correlation for coffee to go higher, » Costa noted.

Looking at a euro/dollar chart, versus an ICE coffee daily chart, one sees a sharp resemblance, with strong rallies in both starting around April 22. In the news, Colombia’s 2009 mitaca, or mid-crop, in the country’s most important coffee-growing province of north-central Antioquia is expected to be down between 50% and 60% from last year, industry officials said this week.

Also, Colombia’s National Federation of Coffee Growers, or Fedecafe, is optimistic the country’s coffee production in calendar year 2009 will reach between 11 million and 11.5 million 60-kilogram bags despite weather problems.

Looking at the technical picture for the weekly front month continuation ICE coffee contract, Veronique Lashinski, technical strategist at Newedge, noted that « the medium-term picture is very strong. The rally accelerated as the market broke above $1.3000, and the relative strength index is rising dynamically, with plenty of upside potential for the oscillator.

There is some internal resistance around $1.3500, from December 2007 to September 2008. Then, next significant resistance is around $1.4000. As long as Arabica remains above $1.3000, it is well positioned to challenge $1.4000. » ICE futures volume was estimated at 12,539 lots, and in options 3,811 calls and 3,086 puts traded as of 1:30 p.m. EDT, according to the exchange.

 ICE               Change             Range
July  $1.3680      +130 points       $1.3740-1.3305
Sep   $1.3875      +135 points       $1.3925-1.3500

Source : FutureSource