The market is probing for a near-term low and there seems to be enough uncertainty on the longer-term supply outlook and enough tightness in the near-term cash market to forge a low soon. The market may see another leg down into the heart of the harvest this summer but the recent sell-off is likely enough to attract significant end user support. May coffee closed slightly higher on the session yesterday after choppy and two-sided trade for much of the day. The strong US dollar and a sharp sell-off in sugar pressured the market at times but strength in the Brazilian currency and ideas that world demand should remain strong for coffee helped to support the market. Ideas that the market is oversold after last weeks heavy losses and a continued trend towards declining exchange stocks helped to support. Rain is expected for Brazilian robusta coffee producing areas which have suffered from more than two months of a drought. Traders see losses of 20-40% in many areas which were just too dry and especially too hot in the past few months. Brazil produces mostly arabica coffee but is also the world’s second largest robusta producer outside of Vietnam and the drought effected state of Espirito Santo was expected to produce near 11.5-12 million bags of robusta and arabica coffee this season. Exports from Brazil for the month of February reached 2.08 million bags, about unchanged from January and down from 2.287 million bags in February of 2009. February exports from Honduras reached 608,082 bags which pushed the October to February total to 1.14 million bags, up 40.7% from last year. February exports from Costa Rica reached 150,591 bags which pushed the October to February total to 394,916 bags, down 20% from last year. The COT reports on Friday showed a slight long liquidation trend for coffee with trend-following funds shifting from a net long to a net short position of 394 contracts. Funds were sellers of a net 2,974 contracts for the week and the selling trend is seen as a short-term bearish force. Even commodity index traders reduced their net long by more than 1,000 contracts to a net long of 53,553 contracts. Daily ICE certified deliverable coffee stocks were up 1,505 bags yesterday to 2.772 million with 34,159 bags pending review.

TODAY’S GUIDANCE: It will take a move over 133.90 to turn the minor trend up for May coffee with light support at 131.20 and 130.25. Don’t rule out a recovery to key resistance up near 138.45.

This content originated from - The Hightower Report.