ICE Coffee Review: Scrapes 16-Week Low As Dollar Prompts Sales

The stronger dollar knocked ICE Futures U.S. arabica coffee to 16-week lows Thursday as weak technical chart signals intensified selling pressure. March coffee settled down 60 points, or 0.3%, at $1.3295 a pound, off the $1.3205 low.

Coffee futures added to the week’s losses as outside markets and cues from technical chart formations dictate market direction, analysts say. Prices were unable to advance, indicating more losses were in store. Futures have lost more than 6 cents a pound since the week began.

« Coffee not only has bearish technicals, but bearish outside influences, » said Spencer Patton, chief investment officer at Steel Vine Investments in Chicago.

The strong dollar weighed on some commodities markets including coffee Thursday. The firm dollar tugged prices lower as traders sought a safe haven from risk amid worries about euro zone sovereign debt. Traders tend to sell futures when the rising greenback makes contracts more expensive in other currencies. The CRB Index was lower in the last half of the session as commodities, including cocoa and metals, retreated.

Coffee’s fundamental outlook is mixed as available physical supplies are lower due to poor weather in many Latin American countries that produce the beans, particularly Colombia. However, that bullishness is overshadowed by expectations for a bumper crop from Brazil beginning in April, analysts said.

ICE physical coffee stocks have fallen to their lowest point in seven years. ICE coffee warehouse stocks decreased by 6,469 60-kilogram bags Thursday to total 2.932 million bags, according to exchange data. The decline in exchange stocks lends support, though the strong dollar has caused a stronger reaction in recent trading, said Tom Mikulski, senior market strategist at Lind-Waldock in Chicago.

Coffee traders also seem to be more focused on outlooks that Brazil, the world’s largest coffee producer, may produce between 45.9 million 60-kilogram bags and 48.7 million bags from the 2010 crop, according to the country’s National Commodities Supply Corp., or Conab.

« It’s very clear what’s weighing on the market is the enormous Brazilian crop that seems to be on the horizon, » Patton said. Analysts said the next support level for March coffee is the $1.30 level. Patton said futures could see a bounce higher after recent sharp losses, but will continue to look to outside markets for cues.

Source : FutureSource