Coffee Commentary for December 10th

ICE Coffee   Futures Rally   

Arabica coffee   futures recovered Tuesday helped by the London market action.  The most
active  contract for March delivery settled 415 points higher at 110.25 cents a
pound.   A strong move of the London Robusta market encouraged the
arbitrage related  buying, after the Arabica premium traded at the narrowest
level of the last five  years.  The coffee market was also helped by other
commodity markets that  advanced today supported by a weak US dollar.  The
US dollar weakened as  investors expect no change of the monetary policy in the
short term.  The CRB  index gained 175 points, posting highs not seen since
October 30.  In related  news, the real in Brazil was stronger as traders
anticipate the central bank  will continue to intervene to support the
currency.  Technically, the March  chart shows support and resistance in
the near term at 105.50 and 112.00  respectively.  A recent increment of
the open interest reflecting new short  players could induce some short covering
today. The OI increased 3,496 lots  since December 5.



London: A more controlled  opening  for Robusta today with the activity revolving
 around structure. The  market is  continually referring to ongoing issues of low stocks and no grading.
Options  will be a main focus over the coming days with the January positions
expiring  next Wednesday 18th December. We are currently carrying almost 12,000
Calls live  at the moment with the market moving above the biggest strike of
1800 during the  morning which alone holds 5,589 lots open which provided
another push to  momentum. The pattern of trading repeated a familiar sequence
with the board  pausing before taking another leg higher encouraged by the
backwardation of the  market. The quality of selling became more diluted as the
price action worked  higher. Turnover maintained a good pace into the session
with the market  constantly searching for the next target on the upside. The
January premium  traded to a new high with the outright market finding its level
above 1800.  Prices continued its impressive rally into the afternoon with only
a small  reduction in the January exposure after the healthy upside move
yesterday  encouraging the rally. The pattern of trading indicated that we were
  experiencing a transition of shorts into longs driving the move as turnover
  broke 30,000 lots and the price action positioned around the highs into the
  close. Options added a lot of liquidity as strikes were rolled and traders
  organized positions for the January expiry against the aggressive rally in
  prices.