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Cold enough weather to threaten frost in southern Brazil this week along with tightening cash markets and bullish outside market forces helped drive the market to the highest level since early September of 2008. While very early in the cold season, some weather watchers are calling for frost possibilities and this was enough to drive shorts from the market and support what is being called a low volume rally in coffee. A lack of interested sellers and light short-covering was enough to drive the market higher yesterday and bullish outside market influences added to the positive tone. Coffee surged sharply higher into the close and funds were buyers on the session finding support from outside markets including energy and stock market rallies and the weaker US dollar added to the positive tone. High premiums in Colombia and expectations for tightening supply ahead of the Brazil harvest along with some talk that the market may need a weather premium into the cold season in Brazil helped to support. Declining exchange stocks added to the positive tone. The USDA attache in San Paulo pegged the Brazil 2009/10 production at 43.5 million bags which would be down 15% from last year. Carry-over stocks are pegged at 2.94 million bags, down 3.07 million from 08/09. The market is technically overbought but the COT reports do not show an extreme. Speculators as of May 26th pushed their net long position to 33,080 contracts which is still well shy of the record high of 69,191 contracts reached in February of 2008 and would suggest that if the trend stays up that speculators will continue to add longs. In addition, exchange stocks are in a downtrend as commercial traders begin to pull supply from the exchange. Stocks were down moderately for the fifth session in a row on Monday and this could be a signal that commercial traders may see the exchange as a viable source of supply over the near-term. Exchange stocks fell 21,619 bags to 3.699 million with 40,101 bags pending review.
TODAY’S GUIDANCE: Key support for September coffee comes in at 137.35 with 139.55 as closer-in support. Key resistance comes in at 146.10 (50% correction of contract range) and then 154.80.
