Morning Futures Roundup

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Bear Market Brewing in Coffee Futures

   Fundamentals
The Coffee rally has turned ice cold in 2012, as prices have fallen nearly 50 cents per pound since the start of the year, as many traders anticipate a large harvest out of Brazil, the world's largest Coffee producer, and a potential slowdown in demand due to the slowing economic growth prospects in both Europe and China. The sell-off has indeed been steep, with Coffee prices down nearly 40% from the 2011 highs.

We could see even more short-term price weakness as supplies from the Brazilian harvest come to market. Though the supply and demand situation for the 2012 marketing season looks to be in balance, we could see tighter supplies emerge in 2013, especially if lower cash prices force producers to cut-back on expensive maintenance for the Coffee plants due to lower incomes.

Speculators have also turned bearish on the Coffee market, with the most recent Commitment of Traders report showing both large and small speculators holding net-short positions in Coffee totaling a combined 9,287 contracts as of March 13th. Although gasoline prices are expected to continue to rise this year, at least consumers can look forward to a cheaper "cup of Joe" in 2012.

   Technical Notes
Looking at the daily chart for July Coffee, we notice prices grinding (pun intended) lower for the past year, after peaking just north of 300.00 in early May 2011. Prices are now well below both the 20 and 200-day moving averages, as the market is now trading near 18-month lows. The 14-day RSI has reached oversold levels, with a current reading of 25.54, which could set the stage for a short-covering rally should some bullish news hit the market. 175.00 is seen as the next support point for July Coffee, with resistance found at the 20-day moving average, currently near the 193.15 level.

  
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