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CSCE coffee ends firmer, but well off early high

NEW YORK: CSCE coffee futures ended higher Monday, but fell progressively away from the opening highs, after an initial bullish reaction to a key Brazil forecast, traders and brokers said.

"You see how uncertain the market is? And we're not going to know what Brazil has to sell or ship until it (2000/01 crop) actually gets harvested in May. That's another five months of this craziness," one broker said.

Key March ended up 3.40 cents at 117.55 cents a lb, not far from the bottom of its 126-116.60 cent range. May gained the same to 120.25 cents and the rest rose 3.20-3.30 cents.

Private forecaster Leon Yallouz was widely reported to have pegged his estimate for top grower Brazil's 2000/01 coffee crop between 25-27.5 million (60-kg) bags.

He does not traditionally discuss his private forecast and could not be reached for confirmation or comment on the report.

Market expectations were that Yallouz's prediction would come in higher than or similar to Brazil's official government estimate of 28.9 million 60-kg bags.

"It's lower than expected. If indeed the crop does turn out to be that small, we're looking at potential for a fairly tight market," Judith Ganes, tropical softs analyst with brokerage house Merrill Lynch said.

Arabica futures surged higher on the opening, with key March contract jumping just over 10 percent to 126 cents a lb, up 11.85 cents on Friday's close.

But hedging and profit taking took prices back down to test support at the 120 cent level, with the market managing to hold initially, before further selling took March down to fill a gap to 117.75 cents.

"Today's high was 126 (cents a lb), the same as the previous high last week and the market closed at the bottom end of the trading range. So, the news came out, but the market had to close 15 to 20 cents higher for it to be positive," one broker said.

"You're still seeing Mexicans selling into rallies. The coffee is offered about 18-20 cents under (CSCE March contract) for about 30 (percent) defects, so there's coffee around," he added.

Several traders pointed out that the Yallouz forecast is still preliminary and that soil moisture conditions in Brazil's coffee belt had significantly improved since his survey.

"The thing to realise is that Yallouz's past record is that he starts low and then goes higher...and if anything weather has been better than worse," one roaster said.

But a leading Brazilian cooperative said Monday that extended drought across coffee plantations in Brazil has caused more germinating beans to fall from trees than usual, slicing into final output.

Although bean droppage is a normal phenomenon, the 2000/01 crop seems to be suffering more than usual as very low rainfalls through the winter months meant that many trees were already weakened when they entered the critical flowering period.

Technicians said resistance in March stands at 122-123 cents, then 126 cents. Support was pegged at 117 cents, then 109-110 cents.

Volume reached an estimated 9,185 lots against the 8,285 lots previously.

The CSCE is a subsidiary of the New York Board of Trade.-Reuters