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Thursday, October 11, 2007

Coffee Market update for Oct 11

After Tuesday dip to 1,33 today December ICE Arabica coffee futures rebounded up to 1,39 in the opening session and is hovering around 1,385 at mid session up 3.5% from yesterday. Coffee traders are still closely monitoring weather for Brazil's October blooming: Sao Paulo state could get light rain of up to 3 millimeters this weekend, Northern Parana 6 millimeters this weekend with more on Monday and Tuesday. By Oct. 19 should be rainy in northern Parana, Sao Paulo and in south Minas Gerais. Brazilian trees in their first three years of production are under stress from current dryness, while adult trees more than four years old -which make up the majority – may be more resilient, especially those planted above 900 meters. Traders report that dry weather may shaved as much as 10% off forecasts for the expected giant Brazilian next crop of 55 million bags (with peaks of 20% in some regions): some however say that a 50 million bags level may still be reached in Brazil's new crop unless rainfall does not materialise soon, in which event the crop may suffer additional significant damage. The Brazilian CNC (Conselho Nacional do Café) warns that estimating the potential damage of 2008/2009 crop at this stage is still pure speculation, there will be some reduction but it is still too early to figure out the size. The president of CNC added that an exact assessment of the next crop figures can be done only in January. Tomorrow COT data will shed some light on market participants positioning: I will closely watch the speculator net long position to assess whether the current high coffee prices may be sustained or not: should net long spec positions increase, the market will be more vulnerable to another severe correction at the first rain in Brazil in my opinion.

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