DJ ICE Coffee Review: Modest Gains In Consolidation

Arabica coffee futures rose slightly Wednesday, supported by a weak U.S. dollar and a resulting firm trade in the commodity indexes, as prices consolidated at slightly higher levels. Nearby March coffee futures added 10 points, or 0.08%, to settle at $1.3045 on ICE Futures U.S. May futures rose 60 points, or 0.45%, to settle at $1.3285 a pound.

Extremely tight supplies of mild, washed arabica coffee beans offer the market buying support, with modest amounts of roaster buying also lifting prices. The market continues to consolidate at higher levels as traders attempt to recoup some of Monday’s technically induced sell-off.

Roaster buying picked up slightly with futures prices now 3.1% lower than they were after Friday’s settlement, said Jack Scoville, analyst and vice president at Price Futures Group. Central American coffee differentials continue to hold at « very strong » levels, he said, amid extremely tight supplies of mild, washed arabica beans.

Colombia, the largest producer of top-quality, mild, washed arabica coffee beans, may see its crop rebound 22% in the first half of 2010 to 5.2 million 60-kilogram bags, Fedecafe said Tuesday. Analysts are skeptical, however, that the country will even match last year’s output given the erratic weather patterns.

ICE warehouse stocks continue to decline, offering the market further support. Stocks fell 2,705 60-kilogram bags to total 2.799 million bags, ICE data show. Even with the modest price gains scored Tuesday and Wednesday, May coffee is trading below key price points, leaving the technical outlook in bears’ control.

May coffee needs to hold above $1.3130 a pound–Monday’s low–to avoid further losses down to $1.2750, an analyst said. Looking at a multi-month chart, price pullbacks toward $1.3000 are met with buying interest, while any rallies toward the mid-December highs are countered with a sell-off, he said.

As long as May coffee holds below $1.3415, it will be positioned to decline to $1.3130 and then to $1.3035 and $1.3000, said Veronique Lashinski, technical analyst at Newedge in New York. In addition, a bearish technical signal forming on the weekly continuation charts could send May futures below $1.2000, she said in a research note.

Source : FutureSource