Forexpros – Coffee futures edged higher for a second day on Monday, as last week’s steep decline to an 18-month low created bargain buying opportunities for investors, while a broadly weaker U.S. dollar also lent support.
On the ICE Futures Exchange, Arabica coffee for May delivery traded at USD1.7970 a pound during U.S. morning trade, gaining 0.91%.
It earlier rose by as much as 1.25% to trade at a two-day high of USD1.8025 a pound. Prices dropped to USD1.7455 a pound on March 22, the lowest since October 8, 2010.
Coffee prices have lost nearly 21% since the beginning of 2012 and are down almost 12% so far in March, as traders eyed a huge harvest in top grower Brazil and speculators pushed prices lower.
Brazilian agricultural forecasting agency Conab said earlier in March that it expected Brazil’s upcoming 2012-13 Arabica coffee crop to reach 52.3 million bags.
That would exceed a record 48.5 million bags in 2002. A bag of coffee weighs 60 kilos (132 pounds).
The downward trend in coffee prices started in mid-February and has accelerated as the crop calendar moves closer to the Brazilian harvest, which starts in May.
Speculation that Brazilian growers, who had been holding out for higher prices, are now selling supplies in an effort to clear out stocks before the new harvest begins further added to selling pressure in recent weeks.
Brazil is the world’s largest producer and exporter of Arabica coffee. Arabica is grown mainly in Latin America and brewed by specialty companies.
However, the sharp decline triggered some bargain buying from traders reluctant to bet that prices would fall further.
Commodity firm Olam International said last week that the downside in Arabica prices should be limited with global supply and demand expected to be balanced until mid-2013.
The Singapore-based commodity trading house added that it believes the current downward move in prices “is a bit overdone”.
Meanwhile, coffee producer Illycaffe said that prices could rebound to as high as USD2.00 per pound by year-end as global stockpiles tighten, world demand remains firm and climate change keeps production trailing demand.
Next year’s Brazilian crop, the world’s largest, will enter the low-cycle of the biennial harvest, reducing the small surplus left by the bigger production this year, Illy said.
Brazil’s coffee production rises and falls from one year to the next in a biennial cycle.
In addition, Colombia’s output, the second biggest grower of the Arabica beans, has not recovered from weather-induced losses seen in the last three years, which may leave global stockpiles in a tight situation, as demand remains resilient.
Meanwhile, prices found further support after Federal Reserve Chairman Ben Bernanke said accommodative policy is needed to lower unemployment, causing a drop in the dollar that made commodities more attractive.
The dollar index, which tracks the performance of the greenback against a basket of six other major currencies, was down 0.3% to trade at 79.29, the lowest since March 9.
Elsewhere, on the ICE Futures Exchange, cotton futures for May delivery dipped 0.1% to trade at USD 0.8954 a pound, while sugar futures for May delivery shed 0.35% to trade at USD0.2545 a pound.
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