ICE Coffee Review: Dives To 10-Week Low; Funds Sell On Dollar

Speculative fund selling booted ICE Futures U.S. arabica coffee to 10-week lows Wednesday as commodity prices tripped while the dollar firmed on economic jitters. March coffee settled down 470 points, or 3.5%, at $1.3355 a pound, off the $1.3335 low.

The dollar rose as traders took less-risky investments ahead of a policy statement from the Federal Reserve. Traders tend to sell futures contracts when the firm dollar makes them more costly in other currencies. No change in U.S. interest rates was indicated in the Fed’s announcement, as expected.

Recent dollar strength has been attributed to concerns tighter economic policy in China could curb a world recovery. Traders have also been flowing into the safe-haven dollar amid fears about sovereign debt in the euro zone.

Despite tight physical supplies that typically support coffee prices, outside cues are guiding the market, said Jack Scoville, vice president at Price Futures Group in Atlanta. « [Economic concerns] together are generating risk aversion, so funds are getting out of commodities positions in general, » said Marcio Bernardo, coffee analyst at Newedge USA in New York.

Technical chart indicators show coffee futures are oversold, said Bernardo. In reaction, March futures could rise toward the $1.40 level, he said. Support for the contract rests at $1.32-$1.33, he said. March coffee has support at $1.30, Scoville said.

Analysts note that strong premiums for physical coffee sales in Colombia support prices. Also supportive are sliding ICE arabica physical stocks, which have fallen below the psychological 3-million-bag marker. However, expectations for a record crop from Brazil, starting with the harvest in April, are keeping futures from rising on their own merit.

ICE coffee warehouse stocks decreased by 12,776 60-kilogram bags Tuesday to total 2.939 million bags, according to exchange data.

Source : FutureSource