DJ ICE Coffee Review: Falls In Correction; Traders Uncertain

NEW YORK (Dow Jones)–Coffee prices slipped for the first time in eight sessions Thursday as traders paused to plot their next moves in the wake of a 17.5% rally. 

Nearby coffee for July delivery ended 2.40 cents, or 1.5%, lower at $1.5635 a pound on ICE Futures U.S. 

Coffee prices hit their highest levels in more than two years Tuesday. The initial jolt was sparked by commercial short covering, or buying to exit the obligation to sell coffee. Those gains attracted speculative fund buyers, like banks and hedge funds, who were following bullish technical cues. Prior to this rally, the coffee market had traded sideways between $1.30-$1.40 since January. Prices have found support from extremely low availability of high-quality arabica beans after two years of poor harvests in Central America and Colombia. But expectations of a bumper crop from Brazil, the world\’s top coffee producer, have kept a lid on coffee prices. 

Traders stepped back from the excitement to assess the situation. Analysts said Brazilian coffee producers are likely to sell if they see the rally is wearing down. Those sales would signal to funds that more losses are in store, activating more sales. 

\”The more that we see this consolidating pattern, the more likely we are to see this coffee market come back to earth,\” a Chicago-based broker and analyst said. 

However, after the surprise rally, there\’s no telling the next move for the coffee market.  

\”It\’s still anybody\’s guess as the where the market could go if funds continue to buy,\” said Marcio Bernardo, a coffee broker and analyst at Newedge US in New York. \”If funds buy another 20,000 [or] 30,000 lots, they can take this thing up another 10 or 20 cents.\” 

Tightness in the cash coffee market has underpinned prices for more than a year. Traders are paying close attention to the pace of harvest in Brazil.

Though nearly half of the country\’s crop is arabica beans, traders estimate only 10% of those are of high enough quality to parallel the beans from Central America and Colombia. Harvests in those countries occur during the fall.  

In the near term, the coffee market is due for a correction back to $1.50, which presents a good buying opportunity, a coffee trader in Central America  said. 

The trader noted Brazil\’s June coffee exports are down compared to last month, an indication that shipments may not pick up as expected. 

Brazil\’s green coffee exports totaled 511,858 60-kilogram bags in the week to June 16, compared with 1.027 million bags for the same period in May, according to the country\’s Green Coffee Exporters Council, or Cecafe. 

Bernardo noted that trade was somewhat light earlier in the month, so end-of-the-month figures will be more representative of trade. 

ICE coffee warehouse stocks decreased by 1,695 60-kilogram bags Thursday to total 2.25 million bags, according to exchange data. 

ICE coffee open interest–the number of active positions left at the end of the session–increased by 2,163 lots Wednesday to total 153,380 lots, according to exchange data. 

Volume was estimated at 35,314 lots, according to exchange data. In options, approximately 4,574 calls and 4,862 put options traded. 
 
       ICE       Change     Range              Liffe        Change 
Jly     $1.5635   -2.40c    $1.5540-$1.5970      $1,540      -$23 
Sep   $1.5780   +210 pts  $1.5665-$1.6090      $1,551      -$15 
 
  -By Holly Henschen, Dow Jones Newswires; 212-416-2138; holly.henschen@dowjones.com