Morning Futures Roundup

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Coffee Cools as Frost Fears Abate


  Fundamentals

The bull market in Coffee prices has turned cold, ironically due to the lack of freezing temperatures in the Coffee growing regions of Brazil. Many traders are starting to remove some of the "risk premium" in Coffee futures prices, as weather forecasters are calling for warmer temperatures through the end of the month. With only about a month to go in the "peak" frost and freeze season, weather conditions appear to be ideal for the upcoming harvest.

Also pressuring Coffee prices was the continued move away from so called "risky" assets, such as commodities, due to the continued concerns over the European debit crisis and the lack of definitive plan to deal with the US debt situation. Many bulls continue to hold-on to the fact that Brazilian Coffee production is expected to be lower this season, due to this being the "down" year in the biennial production cycle that affects Arabica Coffee trees.

High quality Coffee stocks remain tight, and unless we see a significant improvement in the production totals out of Central America and Columbia, we could see prices rebound later this year, as roasters and other end users may be forced to "pay-up" to obtain high quality beans.



  Technical Notes

Looking at the daily chart for September Coffee, we notice prices failed to hold above the 200-day moving average, which is viewed by many technical traders as the indicator of whether a market is bullish or bearish. The 14-day RSI has turned neutral to weak, with a current reading of 40.87. Should prices hold above the recent low just above the 240.00 level, we may start to see prices begin to move sideways until the end of the frost season when traders can get a better picture as to the potential size of the Brazilian Coffee crop. Support for September Coffee is seen at the June 23rd low of 241.45, with resistance found at the July 7th high of 271.90.



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