DOW JONES NEWSWIRES
Arabica coffee futures posted sharp losses Tuesday, nearing 1 1/2-week lows, as bearish technical traders pushed the market down through key support areas that tripped preprogrammed sell orders.
Nearby December coffee fell 600 points, or 4.3%, to settle at $1.3405 a pound on ICE Futures U.S.
Sell stops were tripped near $1.3860 and $1.3620 and $1.3500, a broker said, leading to waves of speculative selling.
The inability of December coffee to scale double-top resistance near $1.4300 Monday, and to close that day near session lows, set the market up for losses. Weakness in the major commodity indexes also encouraged coffee bears to sell.
"We've put in a real good-looking double-top pattern in coffee...and we've retested that area and bounced off of it a couple of times," said Spencer Patton, chief executive officer of Steel Vine Investments in Chicago.
Patton believes the Brazilian crop will be "fantastic" and expects December coffee futures to fall to a two-month low of $1.2400 a pound given the sharp losses.
Brokerage giant Goldman Sachs said in a research note Tuesday that coffee futures may fall on the potential for strong Brazilian production.
"On net, prospects remain for a tighter inventory outlook for 2008/2009 given reduced output and flat demand," Goldman Sachs said. "However, the potential for strong Brazilian production in the coming year in the face of uncertain demand poses downside price risk."
Coffee farms in eastern El Salvador have escaped the worst damage from flooding and mudslides, officials said. There are no reports of coffee farms being hit directly, though there are concerns that coffee cherries nearing the harvest could be damaged by excessive moisture.
Some traders continue to cite crop concerns in Brazil and Colombia due to erratic weather, though those concerns weren't evident as coffee prices dropped Tuesday.
Traders continued to roll positions out of December and into March contracts ahead of first-notice day on Nov. 19.
Brazilian coffee-growing areas are expected to receive beneficial rain, which may have had a bearish influence on prices, a broker said.
Scattered to widely scattered showers and thunderstorms are forecast each day this week and into the weekend for Brazilian coffee areas, which will benefit the flowering and budding trees, private forecaster DTN Meteorlogix said.
ICE warehouse stocks continue to contract, falling 7,875 bags to total 3.185 million 60-kilogram bags, the exchange
reported.
ICE open interest fell 1,443 to total 128,054 lots, the exchange reported.
Volume is pegged at 35,273 lots traded, with 5,172 calls and 3,364 put options traded.
ICE Change Range
Dec $1.3405 dn 600 $1.3315-$1.4010
Mar $1.3715 dn 600 $1.3630-$1.4315
-By Tom Sellen, Dow Jones Newswires; 913-322-5177; tom.sellen@dowjones.com
(END) Dow Jones Newswires
11-10-09 1522ET
Copyright (c) 2009 Dow Jones & Company, Inc.
