ICE Coffee Languishes, Corrective Pattern -- Technical Analysis

Kira Brecht

  ICE March coffee futures are trading quietly Wednesday as the market

consolidates in a minor corrective pattern following the new contract low hit

early in the month. The short-term outlook is choppy and sideways, but the

longer-term trend remains firmly bearish.

  ICE March coffee recently traded down 25 points at $1.0850 a pound.

  Since hitting a new contract low at $1.0415 on Nov. 6, the ICE March coffee

contract has rebounded higher with a minor series of higher highs and higher

lows. The corrective strength hit a peak at $1.1200 on Nov. 22 and that remains

important nearby resistance for the market. The coffee market has stalled just

below 40-day moving average resistance in recent days, which comes in at

$1.1202 on Wednesday.

  For months now, the 40-day moving average has acted as strong resistance on

minor counter-trend rally moves in the coffee market. While minor breaches have

been seen of the 40-day moving average, they have been short lived. Traders can

continue to look at that zone as strong nearby resistance.

  Daily momentum has flat-lined, with the nine-day relative strength index at

48% on Wednesday. Momentum is neutral and not showing a strong trend.

  Near-term support lies at $1.0615, the Nov. 25 low. If the market took that

floor out the bears would look to push back toward the contract low.

  Overall, conditions are uninspired and volatility has fallen in recent days.

The market is in the midst of quiet pre-holiday trade and liquidity conditions

are likely thin.

  The market is in a corrective phase following the steep and steady sell-off

from mid October. The consolidation could have some more time on the clock.

  Shifting out to the monthly continuation chart for ICE coffee, major

long-term support lies at the December 2008 swing low at $1.0170. That remains

a longer-term objective for the bears. But the market is languishing and not

exhibiting strong momentum, so it may be days or weeks before the bears regain

momentum for a test of lower levels.

Brazil Is Studying More Coffee-Support Measures, Official Says

  SAO PAULO  -  The Brazilian government is studying more measures to help coffee

growers, who are dealing with about $2.36 billion in debt, an official from the

agriculture ministry said Wednesday.

  As prices for arabica coffee, the mostly widely grown variety, trade near

seven-year lows, Brazil's government has taken steps to support the coffee

industry, which produces about 2% of the nation's total exports by value.

  The government's latest effort was last week, when it suspended loan payments

for coffee producers. But farmers say the move doesn't do enough.

  Grower groups would like to see the government establish a strategic coffee

stockpile, let growers pay debts with coffee and provide more financing options

for mechanization.

  "We're looking at all the proposals; nothing has been ruled out yet," Janio

Zeferino, director of the Agriculture Ministry's coffee department, told The

Wall Street Journal.

  More measures will be implemented if the most recent moves don't boost

prices, Mr. Zeferino said. He couldn't say how long the government would wait

before deciding if more is needed, adding any new steps would be announced

"when appropriate."

  Arabica coffee traded on the ICE Futures U.S. exchange is down about 25% this

year, trading at $1.0810 a pound Wednesday. Futures rose as high as $1.12 a

pound last week in anticipation of what the government would propose, but

prices quickly pulled back after the debt-payment suspension was announced.

  Producers said the debt measure deals only with the effects of low prices,

not the price itself. Coffee growers have been taking on debt while they wait

to sell their beans at higher prices.

  Mr. Zeferino estimated that coffee farmers owe 6 billion reais.