The market is rejecting a move to a lower price level even on days when outside market forces were bearish. The oversold condition of the market combined with the better technical action and the lack of new selling interest could spark improving seasonal demand from commercial coffee buyers over the short-term. The new harvest from Vietnam is not due to hit the market until late October or November and the new Colombia crop production is expected to return to a more normal pace by October as well. With a relativly low price and a slowdown in selling of the new crop in Brazil from producers, the market seems to be in a position to at least experience a short-term technical recovery bounce. December Coffee came under pressure early yesterday and managed to push below last week’s lows and to the lowest level since July 22nd. However, the selling dried up and the market saw a recovery bounce back into last week’s range with talk of short-covering helping to support. The market closed unchanged on the session and up 200 points from the lows and a more positive tilt to the Chinese stock market overnight and a firm tone to crude oil helped prices edge higher overnight. Technical indicators are oversold and open interest is low so shorts were quick to cover despite a sharp break in energy markets, a break in US and China stock markets and weakness in most other commodity markets yesterday. Coffee exports in July from Central America, Mexico, Colombia, Peru and the Dominican Republic were 2.191 million bags which pushed cumulative exports for the October to July season to down 10.16% from the previous season. Colombia production into October is expected to begin to recover after a year of slower production. The COT reports on Friday showed an aggressive selling trend from trend-following funds who reduced their net long position to just 9,192 contracts. ICE certified deliverable coffee stocks were down 11,572 bags to 3.42 million with 36,391 bags pending review.
TODAY’S GUIDANCE: The oversold condition and the low open interest puts the market in a position to stage a strong rally off of any positive fundamental news, should it develop. Look for short-term support for December coffee near 121.40 with 128.45 and 130.95 as near-term upside targets.