Coffee futures bounce off 16-month low on bargain buying

Investing.com - Coffee futures regained strength on Thursday, as the previous day’s drop to a 16-month low created bargain buying opportunities for investors, while improved broader market sentiment and a weaker U.S. dollar also lent support, but further downside was seen.

On the ICE Futures Exchange, Arabica coffee for May delivery traded at USD1.8995 a pound during European afternoon trade, jumping 1.1%.

It earlier rose by as much as 2% to trade at a session high USD1.9193 a pound. Prices dropped to USD1.8620 a pound on Wednesday, the lowest since October 18, 2010.

Coffee prices have lost nearly 17% since the beginning of 2012 and are down almost 7% so far in March, as traders eyed a huge harvest in top grower Brazil and speculators pushed prices lower.  

Brazilian agricultural forecasting agency Conab on Wednesday said that it expected Brazil's upcoming 2012-13 Arabica coffee crop to reach 52.3 million bags.

That would exceed a record 48.5 million bags in 2002. A bag of coffee weighs 60 kilos (132 pounds). Most coffee harvesting in Brazil starts in May.

Prices have come under additional pressure in recent sessions on speculation Brazilian growers, who had been holding out for higher prices, are now selling supplies in an effort to clear out stocks before the new harvest starts in May.

The downward trend in coffee prices started in mid-February and has accelerated as the crop calendar moves closer to the Brazilian harvest.

Brazil is the world's largest producer and exporter of Arabica coffee. Arabica is grown mainly in Latin America and brewed by specialty companies.

However, the sharp decline triggered some bargain buying from traders reluctant to bet that prices would fall further amid speculation Vietnam's coffee exports in March could ease to between 120,000 and 130,000 tonnes, or 2 million to 2.2 million bags.

Falling supplies from Vietnam, the world's largest producer of robusta coffee, could prompt buyers to switch to other suppliers.

Meanwhile, agricultural commodities also received a lift from improved broader market sentiment as prospects for a successful Greek deal rose after a group of major banks and funds said they would take part in the swap.

The swap is vital for Greece to cut its debt and secure a bailout of EUR130 billion. Without the aid package, Greece could potentially default on its debt later this month.

The news prompted investors to move in to riskier assets, such as stocks and commodities and shun the relative safety of the U.S. dollar.

The dollar index, which tracks the performance of the greenback against a basket of six other major currencies, was down 0.36% to trade at a two-day low of 79.44.

A weaker dollar boosts demand for raw materials as an alternative investment and makes dollar-priced commodities cheaper for holders of other currencies.

Elsewhere, on the ICE Futures Exchange, cotton futures for May delivery rose 0.55% to trade at USD 0.9061 a pound, while sugar futures for May delivery added 0.4% to trade at USD0.2398 a pound.