There seems to have been a shift in the tone for the market over the past week with more positive news beginning to seep into the marketplace, at least temporarily. Last week, relentless producer selling from the Brazilian harvest and supply concerns, especially for next year’s Brazil crop, were seen as bearish forces. Now the market is trying to absorb news of less selling pressure from Brazilian producers and a possible weather development that could impact next year’s (2010/11) production. Traders had been nervous about a massive 50-52 million bag crop for next year from Brazil, up from 41-43 million tonnes this year. However, traders now see the possibility that that early rains, which are currently disrupting this year’s harvest, could actually spark a pre-mature flowering of the trees and that would not set. Under this scenario, production estimates for next year would drop. While the likelihood of this happening is small, the oversold condition of the market and ideas that prices are already too cheap helped spark aggressive buying and short-covering this week. Coffee pushed sharply higher on the session yesterday and moved to the highest level since June 16th, as fund traders turned active buyers in coffee and many other commodity markets. Talk of the oversold technical condition of the market along with early weakness in the dollar and strength in energy and stock markets helped to support. News from Brazilian officials that the government is considering additional purchases of coffee to support the market beyond the Coffee Put Purchase Program for producers was seen as a positive force. The more coffee that is pulled off of the market through put programs (3 million bags) or even direct purchases from the government could help support cash markets. US exchange stocks were up 974 bags to 3.55 million with 23,661 bags pending review.
TODAY’S GUIDANCE: While the bullish news has a lot of “what if” factors that have yet to turn into real support, open interest is low and the market is oversold. Key resistance for September coffee comes in at 125.35 and then 129.10, a 50% correction of the June-July break. Support is at 122.55 and 120.85.