DJ ICE Coffee Review: Continues Decline As Dollar Rises

Arabica coffee futures closed lower Monday due to a stronger dollar and in a continued reaction to the producer selling that surfaced late last week.Most-active May coffee lost 145 points, or 1.09%, to settle at $1.3105 a pound on ICE Futures U.S. The July contract slid 135 points, or 1.01%, to $1.3270.

May coffee initially surged to a 2-and-a-half-week high of $1.3520 Friday before reversing course and settling lower. « We tested resistance Friday and did an abrupt U-turn, » said James Cordier, founder of OptionSellers.com. « We saw a lot of coffee for sale by producers at $1.35, probably a larger amount than speculators had anticipated. »

Furthermore, a stronger U.S. dollar and lower energy prices pulled coffee lower Monday, Cordier said. « The buyers from late last week turned into sellers, » Cordier said. Just before coffee trading closed, the ICE March dollar index was around 0.471 point higher. A strong greenback hurts commodities by making them more expensive in other currencies.

Currency analysts said the dollar was bolstered by comments from Chinese Premier Wen Jiabao, refusing to remove the yian’s peg to the dollar, as well as safe-haven buying of the dollar and yen after Moody’s Investors Service cautioned about the credit ratings of the U.S., U.K., France and Germany.

Meanwhile, April crude oil was around $1.66 a barrel lower, hurt by a lack of risk appetite on worries over the economy, sovereign-debt issues in Europe, possible tightening of credit by China and caution ahead of a Federal Reserve meeting on interest rates Tuesday. Other commodities often follow moves in oilas large speculators move in and out of other futures at the same time as crude.

Sterling Smith, commodity trading adviser and market analyst with Country Hedging, commented that’s there was general long liquidation in most commodities–selling by traders to exit positions in which they previously bought.

Coffee is entering a seasonally weak period for the next 90 days or so, Cordier said. « We get into a smaller demand season as it warms up, » he said. « And the Brazilian harvest should be started in earnest in the next four to eight weeks. So we’re going to have slightly less demand and a whole lot more supply. » Smith and Cordier both put support for May coffee around $1.30.

Source : FutureSource