DJ ICE Coffee Review: Falls As Funds Sell; Trims Losses

Arabica coffee futures fell Thursday on speculative fund selling that took many commodities lower amid renewed economic fears, though buying interest allowed coffee traders to trim some losses before the close.

Nearby March coffee fell 275 points, or 2.1%, to settle at $1.2770. Most active May lost 305 points, or 2.3%, to end at $1.2980 a pound. Many commodity markets succumbed to fund selling pressure generated by renewed fears over Greece’s debt and on U.S. jobless claims data that showed an unexpected surge in claims. Already jittery traders fled for the relative safety of the dollar, shrugging off riskier investments such as commodities, brokers said.

The losses in coffee were trimmed somewhat, however, on a combination of roaster buying at the lows and as the dollar came off its early highs. May coffee actually tumbled to a 5 1/2-month low of $1.2825 a pound before recouping some lost ground.

Bullish news continues to hit the market, though traders on Thursday seemed to focus entirely on the firming greenback and the falling equities market. After three years of supply pressure owing to adverse weather and aging trees, world coffee stocks in producing countries are « almost exhausted, » said Nestor Osorio, executive director of the International Coffee Organization.

Global coffee production in the current 2009-10 crop cycle is forecast to reach 123.6 million 60-kilogram bags against demand set at 134 million bags, according to ICO data. Coffee stocks won’t be able to sustain continued strong growth in global demand because growing regions across Africa, Southeast Asia and Latin America are in need of renovation, Osorio told Dow Jones Newswires Thursday.

ICE warehouse stocks continue to decline, shrinking 26,270 bags to total 2.773 million bags. Thursday’s decline in May coffee took prices well below key support areas on the daily bar chart and near oversold territory with a relative strength index of 32%. Any reading of 30% or below indicates an oversold market and suggests prices may be readying for a bounce.

Source : FutureSource