Coffee higher as disease cuts into Central American crop

FCOJ

General Comments: Futures closed higher as USDA showed less production potential than had been expected by the trade. The report noted increasing losses due to Greening Disease. Warm and dry conditions are stressing crops as well. The frosts and freezes seen a week ago could also affect current production, but are more likely to affect production potential for next year as flowers could be lost. Temperatures had been warm in the state until the weekend, and conditions are dry, and talk about the potential for more fruit drop and poor development of the crop for next year continues. Harvest in Florida of mid and early oranges is almost over, and the Valencia harvest is underway. Bloom has been reported in groves in all production areas of the state. Brazil is seeing near to above normal temperatures and light showers and could use more rain. More rain is possible there late in the week. ICE said that 0 notices were posted against March contracts and that total deliveries for the month are 0 contracts.

Overnight News: Florida weather forecasts call for mostly dry conditions. Temperatures will average near to below normal.

Chart Trends: Trends in FCOJ are up with objectives of 137.00 May. Support is at 125.00, 122.00, and 120.00 May, with resistance at 135.00, 141.00, and 144.00 May.

SUGAR

General Comments: Futures closed a little lower in consolidation trading. Chart trends in London and New York are up. Futures seem to uncover new consumptive demand every time the market moves below 12800 in New York, and it seems that the bearish talk of big supplies for the coming year might be part of the price structure. Reports indicate that the Chinese have been using price weakness to buy more Sugar than the trade had anticipated. Brazil will start to offer a little less as mills there prepare for greater domestic Ethanol demand as blends for cars have been changed by the government. The blend will contain 25% ethanol, from 20% now. Middle East demand seems stronger as well as the festival season approaches. This was shown by the big purchases by Iraq in recent weeks. Production has been strong in Brazil so far this year, and reports say that the new crop production looks to be strong as well, so the diversion into more domestic ethanol use will help offset increased sugarcane production. Exports from Brazil continue to be very strong. Exports from other countries are said to be less than expected.

Overnight News: Mostly dry weather expected in Brazil. Temperatures should be near to above normal.

Chart Trends: Trends in New York are mixed to up with objectives of 1900 and 1990 May. Support is at 1835, 1815, and 1790 May, and resistance is at 1900, 1920, and 1940 May. Trends in London are up with objectives of 543.00 and 576.00 May. Support is at 531.00, 527.00, and 523.00 May, and resistance is at 540.00, 541.00, and 544.00 May.

COCOA

General Comments: Futures closed higher on what appeared to be a huge short covering rally. Futures have tested into target áreas for the move and could experience more short covering for the next few sessions. Ideas of new demand at the current lower prices helped créate the rally. Representatives of Barry Callebrut talked about this at a press conference last week. Market trends are still down overall. Ideas are that current low prices should créate new demand and that the main crop harvest is over in Western Africa and much of Asia so that supplies on offer could also be less. The weather is forecast to be warm and dry in West Africa this week. For now, traders expect good mid crop production from West Africa. Malaysia and Indonesia crops appear to be in good condition and weather is called favorable. Traders are starting to look ahead and past the midcrop harvest and note that the market could move to a production déficit next year. More buying is being noted in deferred months at this time due to smaller production ideas for the coming crops.

Overnight News: Scattered showers are expected in West Africa. Temperatures will average mostly above normal. Malaysia and Indonesia should see episodes of scattered showers, but Malaysia will be drier this weekend. Temperatures should average near normal. Brazil will get scattered showers and warm temperatures. ICE said that 11 contracts were delivered today against March contracts and that total deliveries for the month are now 837 contracts. ICE certified stocks are lower today at 4.352 million bags. LIFFE stocks are 5,307 standard units, 176 large units, and 6 bulk units.

Chart Trends: Trends in New York are mixed. Support is at 2070, 2025, and 2020 May, with resistance at 2130, 2145, and 2155 May. Trends in London are mixed. Support is at 1405, 1380, and 1360 May, with resistance at 1450, 1475, and 1505 May.

Futures were higher again Friday on statements from the ICO that Central America could lose 2.5 million bags of Coffee this year and 4.0 million next year due to rust.

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About the Author
Jack Scoville

Jack Scoville is a veteran futures market analyst specializing in grains, softs, rice, oilseeds, and tropical products such as coffee and sugar. His industry contacts in South America, Europe, Asia, and North America provide him with a unique and comprehensive view of these markets. Jack began working in the futures industry over 30 years ago and spent 10 years working on the floor of the Chicago Board of Trade in various roles, starting with The PRICE Futures Group since it was established in 1988. Jack writes daily commentaries - Morning Grains and Softs, in both English and Spanish and is regularly quoted around the world by news & wire services including Dow Jones, AP, Bloomberg, and Reuters. You can contact Jack by phone at (312) 264-4322 or by email at jscoville@pricegroup.com. Learn even more on our website at www.pricegroup.com.

Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.

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