Today's Spotlight Market

Coffee prices are still trying to find a near-term bottom but the start of aggressive speculative and producer selling of late is keeping the market firmly in the bear camp. Many traders should watch for signs of commercial buying should prices move below 160.00 as an indication that the recent price sell-off has become overdone. Absence of buying below 160.00 sets up a potential test of the 2012 lows of 153.70.

Fundamentals

Arabica Coffee futures have turned cold lately, with prices falling nearly 20-cents per pound in just 3-trading sessions last week. Increased supplies from Columbia, high and rising exchange inventories, and a good start to next year's crop, were cited as some of the key factors behind the recent price slide. Production out of Columbia, the second largest Coffee producer in South America totaled 519,000 bags in September, is up 13% from last year's totals. ICE Exchange warehouse Coffee stocks continue to grow; now totaling just over 2.2-million 60-kg bags. A change to weather forecasts, which are now calling for rainfall in the Coffee producing regions of Brazil, could provide a good start to next-season crop ahead of the important flowering period for the Coffee trees. Some producer selling was evident last week and may have been the catalyst for the steep sell-off, as sell-stops were triggered as technical support points gave way. Large speculators are holding a small net-short position, according to the most recent Commitment of Traders report, and we may see fresh selling emerge if recent lows near 156.50 do not hold.

Technical Notes

Looking at the daily chart for December Coffee, we notice renewed selling occurring earlier this week after a feeble attempt to rally-off recent lows failed on Monday. Prices are now well below both the 20 and 200-day moving averages and momentum, as measured by the 14-day RSI, has turned weak with a current reading of 39.19. There appears to be some support seen around the 160.00 area but stronger support does not appear until the September 6th lows of 156.55. Resistance comes in at the 20-day moving average, currently near the 172.00 price level.


Mike Zarembski, Senior Commodity Analyst

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