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The early break yesterday and test of the contract lows failed to attract new selling interest but may have allowed some investors to enter into longer-term bull call spreads for the July contract. The market was 55 lower on the session early and managed to rally sharply on the session. Producer selling seems to be drying up at lower levels after aggressive selling in the January-February time frame. Sellers from Brazil and Vietnam were active and this was the primary reason for the steep sell-off in futures as sellers felt compelled to unload inventory during the deflationary period for the world economy and buyers saw no reason to extend coverage. The International Coffee Organization revised their world production forecast for the 2008/2009 season down to 127.8 million bags as compared with the previous forecast of 133.4 million. Significant revisions were made for Colombia, India and Vietnam. World consumption for 2008 was left at 128 million bags. While other countries may see some increase in production for the 2009/10 season, Brazil looks to see a 7-9 million bag decline and there is talk that the Vietnam crop may also be smaller.

May coffee pushed moderately higher on the session yesterday as the market seemed to run out of commercial sellers on the break below Tuesday’s lows. Talk of a decline in the production outlook, ideas that coffee demand is unlikely to decline much in a recessionary period ahead and more active managed fund buying helped to support. The weaker US dollar added to the positive tone and the market remained strong into the close despite the weaker tone to the stock market and a sharp collapse in energy markets. Talk of the oversold condition added to the positive tone. The Sumatra harvest period (March to August) is just getting underway and old crop supply looks tight as January-Feb exports totaled 25,152 tonnes, down 34% from last year’s pace. ICE certified Arabica stocks were down 2,485 bags to 4.147 million bags with 6,160 bags pending review.

TODAY’S GUIDANCE: Buying support for July coffee comes in at the 107.75-106.20 zone with 114.10 and 116.50 as key resistance.

This content originated from – The Hightower Report.
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