Morning Futures Roundup

Quiet Coffee Market Needs A Caffeine Jolt

   Fundamentals
The summer doldrums continue for the Coffee futures market, as prices remain range bound. Since the middle of August, December Coffee has traded within a relatively narrow 12-cent price range, quite quiet for a market known for its volatile trading activity. Some traders fear a slowing global economy, especially in Europe, will reduce demand for Coffee.

However, there are concerns that next year's Arabica Coffee production totals could be lower, as leading Central American producers Honduras and Guatemala have seen an outbreak of Coffee rust. Many traders expect a large Brazilian harvest this season, with Brazilian crop forecaster Conab, estimating the 2013 Coffee crop at 50.48 million 60kg bags, though quality concerns are prevalent given the wet weather that has delayed the harvest.

Large speculators are holding a large short position in Coffee, with the most recent Commitment of Traders report showing non-commercial traders net short 16,377 combined futures and futures options positions as of August 28th. This position may be a catalyst for higher prices in the near future, especially should bullish news reach the market and force short-covering buying by overextended Coffee bears.

   Technical Notes
Looking at the daily chart for December Coffee, we notice prices trading at the lower end of the recent trading range between 157.00 and 170.00. Prices are now below the 20-day moving average, and momentum is weak, with the 14-day RSI currently at 33.47. Thursday's Conab's crop size announcement sent prices below support at 160.00 and set-up a potential test of the June lows near 154.00. Resistance for December Coffee is seen at the August 29th high of 169.10.

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About Mike Zarembski

Born in the grain pits of the Mid-America Commodity Exchange (MidAm) in the early 1990s, Mike's futures career soon shifted to the offices of TD Waterhouse in 1999, followed by Xpresstrade in 2002 and eventually optionsXpress in 2007.