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With the market technically overbought and outside market forces mixed, the market looks somewhat vulnerable to a correction on the downside but we would not expect another leg down. The market is likely to find support from a lack of aggressive new commercial selling on the market and from the possibility of a continuation of the downtrend in the US dollar. It will still be another 3-4 weeks before there is much in the way of harvest in Colombia or Vietnam and Brazil has taken significant measures to avoid increased producer selling on the market of the recently harvested crop. In fact, Brazil officials indicate that they could own up to 10 million bags of coffee in government storage by this time next year. December coffee closed slightly lower on the session yesterday and near the middle of the day’s range which is also near the middle of the ranges of the past three trading sessions. A lack of new fundamental news in the past few sessions and mixed news from outside markets kept to keep the trade choppy. Traders are waiting for statements from the International Coffee Organization meetings in London this week or more news of commercial buying. Colombia production for the month of August was just 397,000 bags which is down 44% from last year which pushed the 12-month production to 8.97 million bags, down 29%. August exports were 472,000 bags (down 26%) which pushed 12-month exports to 9.15 million bags, down 21%. Poor weather and crop replanting practices have led to the lower production and to the steep premiums for the cash market but traders expect a much better crop harvest for the 2009/10 season which begins in October. A moderate decline in exchange stocks this week may have helped to provide some underlying support. Daily ICE certified deliverable coffee stocks were down 4,006 bags to 3.358 million with 23,133 bags pending review. Open interest was up again and is now up near 9,700 contracts from the September 10th lows to 103,574 contracts.
TODAY’S GUIDANCE: Key support for December coffee comes in at 131.30 and 129.10 with 137.45 and 141.65 as resistance.
TODAY’S MARKET IDEAS: Consider buying corrective breaks to support.
