UPDATE: Coffee Futures Closes At Highest Level Since June

SAN FRANCISCO (Dow Jones) — Coffee futures closed at a more than six-month high Friday, extending their winning streak to five sessions as traders continued to worry about supplies.

March coffee climbed as high as $1.2025 a pound on the New York Board of Trade, touching its highest intraday level since June 23. The contract finished the session at $1.1955 a pound, up 2.1 cents, or 1.8%.

Prices have been climbing from $1.069 close on Dec. 29, so they’re up almost 12% in five trading sessions.

“The fundamental situation is tight for the first two quarters of 2006 and inventories are being drawdown as a consequence of firm prices at origins,” said Rodrigo Costa, an analyst at Fimat USA.

He explained that when prices on the futures markets fall and prices at the physical level don’t follow, the differential between the physical and futures get tighter, revealing a strong physical market.

The current crop cycle “will run a deficit of 7 to 9 million bags (worldwide) and the perspective of a bump production in Brazil for the upcoming 2006/2007 crop was reviewed from 50 million bags to 43/ 45 million bags recently,” he said.

The supply of beans available for roasting in the U.S. may also be tight “due to the disruption in supply caused by the closing of the Port of New Orleans due to the hurricane last year,” said Chris Kraft, an analyst at CKFutures.com. The port was a “major entry way for South and Central American coffee into the U.S.”

Unrest in Venezuela also provided support to coffee prices. Coffee has been disappearing from stores in Venezuela as producers protest price controls, according to a report from the Associated Press Thursday.

“South American (Brazil) growers, co-ops, have been withholding beans from being exported to drive up prices – mission accomplished,” said Kraft.

Coffee fell under the country’s price controls for staple foods back in early 2003, AP said, and prices set in early December sparked protests.

Given the significant coffee-price rally on the futures market, Kraft expects “selling to start anytime now to lock in the dramatic increase in price, and then the exports will increase and prices should correct lower.”

Overall, “this rally has been exaggerated by short covering, speculators and commodity fund buying and does not reflect the underlying fundamental outlook for coffee,” he said.

(END) Dow Jones Newswires