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There is still no technical sign of a top and the market continues to find support from declining exchange stocks but the fundamentals seem to be slowly shifting to the bear camp. Open interest has been declining since mid-July as short-covering may have been the foundation for part of the recent move to new 12 1/2 year highs. After reaching highs earlier in the week, December coffee could not sustain upside momentum and lost ground for the second day in a row yesterday. This upcoming season’s coffee production from El Salvador will be over 43% above last season’s levels. Recent rains in growing areas of Vietnam may improve expectations for this season’s coffee crop. Forecasts for Brazilian production areas call for temperatures to remain well above levels that could cause a damaging frost. Daily exchange stocks fell to another 10-year low yesterday, down 1,600 bags to 2.044 million bags with 21,389 bags pending review. The market is in a transition period going from extremely tight supply of higher quality coffee and a relatively tight supply of all coffee on July 1st to a much easier supply period ahead. World production is expected near 133-135 million bags for the 2010/2011 season which is up from 120 million this past season with a bumper crop from Brazil as the key reason for the supply increase. Exports in July from Central America, Mexico, Colombia, Peru and the Dominican Republic totaled 1.976 million bags, down 7.6% from last year. This pushed October to July cumulative exports to 20.048 million bags, down 10.8% from the previous season.
TODAY’S GUIDANCE: While stocks are tight at the beginning of the 2010/11 season, the bumper crop out of Brazil and the increasing production out of Colombia should eventually bring an expanding supply of deliverable grade coffee on the world market. Short-term support comes in at 176.50 and 174.50 with 187.45 as next chart count “if” the uptrend continues.
TODAY’S MARKET IDEAS: Watch for a sign of a top soon and a move through support could spark an increase in speculative long liquidation selling. If the market turns down from here, 169.75 will be initial strong support.
