The market remains in a steep uptrend as funds and commercial traders seem to be aggressive buyers at the same time. The strong cash markets in Colombia and a lack of aggressive selling from Brazil producers on the rally has been seen as a positive force. After choppy and two-sided trade early yesterday, speculative buying emerged to drive the market to a new high for the move and to the highest level since early October. The weaker dollar overnight helped drive the market to another new high for the move this morning. A weaker tone for the stock market and energy markets early yesterday helped pressure the market but a collapse in bonds on fears of higher rates ahead had many traders talking about the potential for inflationary pressures. Talk of a short-term overbought condition and ideas that July coffee is approaching key resistance and the 136.00-140.00 level helped to limit the buying. Talk that Colombia coffee production for the first half of 2009 will come in near 4.5 million bags as compared with 6 million bags last year has helped provide underlying support and has also helped support the historic premium of the cash to futures. The Colombia national coffee federation sees the tightness and believes the supply situation will be more normal in the second half of the year. The premium structure from Central America could attract interest in exchange stocks and the trade is trying to avoid short positions ahead of the cold season in Brazil so the positioning of the trade may also help boost buying in futures as shorts reach for call coverage and end users cover needs. Fund traders seem to be in the early stages of building a more significant net long position in coffee. Open interest is up more than 5,800 contracts since May 13th and reached 138,827 contracts yesterday, up 1,814 on the day. Daily exchange stocks were up 5,055 bags yesterday at 3.777 million with 10,402 bags pending review.
TODAY’S GUIDANCE: The market is in a steep uptrend and getting overbought but a lack of new selling interest and active buying from speculators may keep uptrend intact.
TODAY’S MARKET IDEAS: Buying support for September coffee comes in at the 134.40-132.70 zone with 139.90 and 144.45 as next upside targets.