20/05 16:19 DJ ICE Coffee Review: Ends Lower But Pares Losses

Arabica coffee for July delivery closed with modest losses, after prices
rebounded from hitting three-week lows early in the session as widespread
commodity pressure weakened the market.
Nearby July coffee on ICE Futures U.S. in New York lost 0.85 cent, or 0.64%,
to settle at $1.3165 a pound, off the session low of $1.3025.
Commodities came under selling pressure due to ongoing concerns about the
possible spread of euro zone economic contagion and as traders watched the Dow
Jones Industrial Average slide to near the key 10000 area.
Coffee was not immune to this speculative fund selling as traders sought to
shed riskier investments like commodities in favor of the U.S. dollar. The
greenback eventually gave in to selling pressure, however, which caused traders
to buy back previously sold positions and took coffee off its lows, a broker
said.
Coffee even traded higher for a time before heading lower near the close.
The decline was all about "flight to quality and aversion to risk trades,"
said Marcio Bernardo, coffee analyst with Newedge in New York.
With the threat of a global debt crisis, large fund traders continue to shift
money out of riskier investments like commodities, putting the market's
fundamentals solidly in the back seat.
Strong consumption continues to deplete coffee stocks, consumption that held
up well even during the depths of the economic recession. The large Brazilian
crop that is beginning to hit the market has already been discounted, said
Bernardo.
"Even if we end up with 58 or 59 million bags, that won't surprise many
people," he said.
The agricultural attache in Sao Paulo recently estimated the new 2010-11 crop
at 55.3 million bags, up 23% from 2009-10, due mainly to the biennial
production cycle of arabica trees. Previous crop projections have run from a
low of 47 million up to 60 million bags.
Brazil is the world's largest coffee grower and exporter.
The ability of ICE coffee to pare its steepest losses of the session came as
technical buying was uncovered, with July nearing critical chart-based support
at $1.30--an area that has remained intact since September 2009.
A breach of this level and a close below $1.30 would set the market up to
test $1.25 in short order, a technical analyst said.
ICE warehouse stocks fell 2,920 bags to total 2.354 million bags, according
to the exchange.
Open interest--the number of contracts outstanding between traders at the
prior day's close--rose 1,177 to total 134,852 contracts, ICE reported.
Futures volume is pegged at 29,514 lots traded, with 4,473 calls and 3,886
put options traded.

ICE Change Range
July $1.3165 dn 0.85c $1.3025-$1.3320