Morning Futures Roundup

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Bulls Don't Mind Re-heated Coffee

 Fundamentals

After taking a brief "Coffee Break", many bullish traders have re-embraced the Coffee futures market by sending lead month March futures prices to highs not seen since 1997. The latest up-move was once again triggered by weather concerns in Columbia, the world's 2nd largest exporter of Coffee. Heavy rains are playing havoc with movement of the recently harvested crop, and the unusually wet conditions have the potential to damage the 2011 crop as well.

Columbia has produced 7.8 million bags of Coffee through November according to the country's National Federation of Coffee Growers. Current production is below the pace necessary to meet its projection of a 9 million bag harvested by the end of 2010. These concerns are overshadowing the rising U.S. Dollar, which would normally be a bearish catalyst on commodity prices.

The Commitment of Traders report shows both large and small speculative accounts are holding net-long positions in Coffee futures totaling a combined 39,206 contracts as of December 7th. Although this is a rather large net-long position, it is well off the record 69,191 contracts that were held back in early 2008 and leaves plenty of room for fresh buying should Coffee supplies remain tight going into 2011.



 Technical Notes

Looking at the daily chart for March Coffee, we notice prices surging to new contract highs to end the week. The breakout through the recent consolidation on December 13th was the catalyst for last week's rally, as prices closed definitively through the 20-day moving average, triggering a bullish signal for short-term momentum traders. The 14-day RSI is strong, with a current reading of 68.90. 230.00 is seen as the next psychological resistance level for March Coffee, with support found at the November 3rd low of 195.15.


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