DJ ICE Coffee Review: Rises With Commodities As Dollar Falls

NEW YORK (Dow Jones)–Light speculative buying lifted ICE Futures U.S. arabica coffee Tuesday as the commodity complex climbed on firm footing provided by the weaker dollar.

Most-active May coffee settled up 75 points, or 0.5%, at $1.3505 a pound.
Coffee rose with commodities including other softs, energies, metals and grains while the dollar sank. The greenback retreated as traders ventured out of the safe-haven and into riskier investments as market optimism grew. Commodities advanced as traders buy futures when the weak dollar makes them less costly.

Coffee will continue to look to the currency for cues, analysts said.

“It all depends on the dollar,” said Boyd Cruel, senior softs analyst at Vision Financial Markets in Chicago.

Coffee prices have recently run into selling during dollar-inspired rallies, which keeps prices from advancing significantly, said Sterling Smith, market analyst at Country Hedging in St. Paul, Min.
May futures have been range-bound from $1.30-$1.41 since Jan. 26. The contract hit an eight-session high at $1.3645 in Tuesday’s session.

“Coffee’s particularly sensitive to currency issues…[which] keeps fund buyers on the sidelines,” Smith said.

If the greenback continues to be weaker, however, the May contract could approach $1.3875, Cruel said.

Arabica coffee prices are being swayed by currencies amid a drought of fresh fundamental news. Current world coffee supplies are tight as poor weather diminished production in Central America, Colombia and Peru. But expectations for a flood of fresh beans expected at the April-May onset of the new Brazilian crop are keeping a lid on prices, analysts said. Brazil is the world’s top coffee producer.

Coffee production in Colombia fell 41% in January from the same time last year, with exports 38% lower in the same time frame, the country’s National Federation of Coffee Growers said Tuesday. Colombia is the world’s largest producer of mild washed arabica coffee, with an annual production of 11.5-12.5 million bags in recent years.

Exporters in Mexico said the country’s 2009-10 coffee harvest is likely to come in at 3.8 million-4 million bags, compared with the 4.4 million bags reported last year by the government coffee agency.

Liffe May arabica coffee settled $2 lower, or 0.15%, at $1,316 a ton.
ICE coffee warehouse stocks decreased by 620,815 0-kilogram bags Tuesday to total 2.869 million bags, according to exchange data.

ICE coffee open interest decreased by 2,870 lots Friday to total 128,631 lots, according to exchange data.

Volume was estimated at 30,526 lots, according to exchange data. In options, approximately 4,351 calls and 2,115 put options traded.

ICE Change Range
Mar $1.3345 +70 pts $1.3200-$1.3480
May $1.3505 +75 pts $1.3360-$1.3645
-By Holly Henschen, Dow Jones Newswires; 212-416-2138; holly.henschen@dowjones.com