Differing coffee crop estimates brew volatility

Walt Breitinger
Times Correspondent

Coffee futures opened with strong gains after the release of Brazil’s 2006-07 crop output estimate. The lower-than-expected figure – between 40.43 million and 43.58 million bags – supported the March contract, which struck above the well-recognized $1 price ceiling during Monday’s trade.

Coffee prices in London also peaked at five-month highs, as downpours continued sloshing Vietnamese crop fields, lending more support to the New York coffee market. Tuesday,

however, coffee futures could not sustain the swing to the upside and fell across the board, mostly on fund selling.

In global news, a report from the International Coffee Organization predicted that the 2006-07 world crop output would exceed 118 million 60-kilogram bags – significantly higher than last

year’s assessment of 108 million. This pushed prices below the dollar mark, which rolled onto Wednesday’s trade as coffee futures dropped to two month lows. Prices did manage a nice bounce off the 93.50 cent level in the March contract back to the 98 cent arena on Thursday. Nonetheless, traders cautioned that tightness in the coffee market could develop on account of weather damage to Central American crop regions and notably higher rates of consumption

foreseen in 2006-07.

Corn futures closed higher on Monday, as corn and wheat advanced on the heels of big gains in the soy complex. Traders noted that aside from fund buying, corn futures lacked any bullish tendency and were instead pervaded by rising soy product prices. Though a price decline – presumably due to fund selling – started Tuesday’s relatively quiet trade, corn prices recovered due to a price rally in soy products.

In other news, private firm Informa released its U.S. corn crop estimate at 11.080 billion bushels, which was perceived as slightly bearish yet appeared to have little market impact. Nonetheless, Wednesday’s session saw corn futures closing the gap, with traders citing strong farmer and

commercial selling against weaker fund selling as the vehicle, despite steady advances in wheat and soy prices.

Thursday’s USDA report of weekly export sales was 36.2 million bushels, much greater than some pre-report estimates but in fact in line with weekly averages, keeping corn futures in a low, narrow trading range to end the week.

Crude oil futures stayed atop a high price range on Monday, signaling increasing demand after early November prices once drifted below the $60 per barrel hold. With rising natural gas prices at its side, crude oil prices posted new intraday highs, just above the $61 margin. Analysts commented, however, that strong crude oil supplies could deplete a major price rally.

Tuesday’s chopping trading session reflected any uncertainty felt in the pits,

as crude oil futures managed to hold on to small gains after starting much lower. The agency IEA could have tipped off the up-slant after it suggested on Tuesday that global oil demand would grow 2.2 percent in 2006 while global economies expand. Mid-week, inconsequential inventory figures and declining natural gas prices pressured crude oil futures.

The bearish theme would persist unless, analysts suggested, a turn-around in natural gas prices could firm up the energy complex as a whole.

Walt Breitinger is vice president of commodities at A.G. Edwards and Sons. He can be reached at (219) 738-6460.