DJ Arabica-Coffee Futures Jump to Nine-Week High of $1.4570/Lb.

NEW YORK--Arabica-coffee futures advanced Thursday to a level last seen in
early March as investors closing out bets that prices would fall triggered
automatic buying around $1.4450 a pound.

"The funds are liquidating some short positions," said Andre Santos, a
traders at Ally Brazilian Coffee Merchants in Plantation, Fla. That
short-covering boosted the market to a level where investors had pre-placed
orders to buy, which sent futures cascading upward, he said.

Arabica coffee for July delivery on the ICE Futures U.S. exchange was
recently 0.7% higher at $1.4525 a pound, down from an intraday high of $1.4570
a pound.

With the market moving higher for a sixth straight session, it isn't
surprising to see funds closing out short positions and adding longs, Mr.
Santos said. But there are "a lot of negotiations being made in Brazil when the
market goes up like this--producers are willing to sell," and that could cap
the upside to the rally, he said.

Prices have been under pressure as No. 1 coffee producer Brazil begins what
is expected to be the biggest "off-year" harvest ever in the country's two-year
crop cycle.

Brazil's exports of unroasted green coffee were up 37 percent in April compared to the same month a year ago, totaling 2.4 million 60-kg bags, the Council of Green Coffee Exporters, Cecafe, said on Wednesday.

OK I think I am over he shock of how close to ITM you sell options.

Short covering taking KC futures higher.

But you also have this.
So this rally will be limited.

Short covering taking KC futures higher.

But you also have this.
So this rally will be limited.

There certainly is no expectation of the government taking austere measures and reducing funding to the sector because of the drop in world prices especially since it was the encouragement by last year’s policies to curb selling of the crop that has in essence backfired and left farmers in a quandary of how to manage two crops at once, especially with reports of warehouse space to store all this coffee is running sparse already and certainly will get worse once the Arabica harvest is underway.

The jump in prices certainly should encourage some producer sales and help to cap the move. Prior attempted run-ups in coffee failed and it would not be surprising to see the same here, especially since Brazilian prior attempts to prop up the market by refraining from selling have been unsuccessful. The market will need to wait for another time because the policy meeting that goosed up the market today was also canceled.

May is finally here and it is typically a month that sees higher coffee prices as pre-winter buying emerges in the event of a frost in Brazil. The likelihood of a cold snap is slim but the seasonal lure is always there and that could also short term help to fuel a pop in the market. Given how far the market has fallen and that prices are digging into levels that in the past have represented fair value, buyers would seem to be attracted to the market like moths to a candle. Once the crop starts to come in and absent any weather scares, July into August typically see new lows. There are very few times when the seasonal pattern is not held to and during these rare times there was always strong justification for the market to buck the downtrend.

Temperatures were expected to drop in Brazil's coffee belt this week,
encouraging traders to cover bets that prices would fall this week, but
temperatures didn't reach low enough to cause damage, farmers and traders said.

The recent rally is encouraging Brazilian farmers to sell their crop, which
could help pressure prices, said Thiago Cazarini at Varginha, Brazil-based
brokerage Cazarini Trading Corp.

"I don't think [the rally] is going to last," he said. "Producers sold a lot
of coffee [this week]."