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Rains on the weekend in Brazil coffee growing regions helped to slow the harvest which may have been enough to slow selling pressures enough to provide some support. Cold air following the rains were not cold enough to cause any frost damage in key growing areas. The market is in an oversold condition and there appears to be several programs in place which may help Brazil producers hold off on selling into the heart of the harvest. September coffee initially traded lower yesterday on weather reports that appeared to lower the risk of cold temperatures this week in some Brazilian growing regions. But when the market basically held a test of last Friday’s lows, short covering emerged to lift the market which isn’t too surprising given coffee’s extreme oversold condition following the price slide from the early June high. The strong gains in equity markets and the Dollar giving back early strength provided outside market price support to coffee as well. After an aggressive selling pace for much of the season, Vietnam producer selling has slowed and some merchants are having difficulty in putting together commitments for some of the coffee sold on the international market. Vietnam cash prices bounced up 2% in the past week but this has not been enough to entice new selling. The market is probing for a low enough price level to encourage new demand or some increased bookings from end users. While open interest has reached the lowest level since December, the trade is nervous that the liquidation sell-off is not yet complete. The Commitment-of-Traders reports on Friday showed the coffee market still in a long liquidation mode with speculators reducing their net long position by 3,379 contracts to 8,277 contracts as of July 7th. US exchange stocks were down 8,103 bags to 3.572 million with 31,734 bags pending review.
TODAY’S GUIDANCE: The market is in a short-term oversold condition but without a weather threat, the speculative long liquidation trend might continue. Support for September coffee comes in at the 112.95-109.00 level with 116.55 and 118.45 as resistance.
