The sharp break in world equity markets has revived fears of weakening world demand for all commodity markets and coffee has been no exception. Overnight weakness in equity markets along with a firm tone to the dollar has helped pressure the coffee market as cash dealers remain concerned that coffee stocks are in relatively weak hands. The firm dollar and a general fear of holding inventory in a deflationary environment has commercial traders worried that Vietnam and Brazil coffee will continue to flow onto the world market. This short-term supply along with a lack of aggressive buying from end user to extend coverage is a short-term negative force. The longer-term supply/demand fundamentals for the coffee market remain positive and futures are in an oversold technical condition. May coffee pushed slightly higher on the session yesterday with a mostly quiet and inside trading session. A lack of new fundamental news along with a weaker US dollar and less negative outside market forces helped to support the bounce. In addition, talk of the oversold technical condition after the recent set-back helped to support. A general sense that deflation is a serious world problem for commodities and other assets and that gold is one of the few commodities which might do well in the current environment helped to keep selling pressure on coffee and other agricultural markets this week. Long liquidation pressure from speculators is another negative as open interest has dropped from over 138,000 contract on February 9th to 122,706 contracts yesterday. Exchange stocks have been slipping over the past 3 weeks or so but ICE certified arabica stocks as of February 19th were up 3,676 bags from the previous session to 4.189 million bags with 17,235 bags pending review.
TODAY’S GUIDANCE: The market seems to be in a position to bounce “if” outside market selling pressures subside soon.