Coffee futures broke higher in afternoon trade Wednesday as a weakening dollar against a basket of currencies pulled commodities out of the doldrums.
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Arabica coffee for July jumped 2.2% to close at $1.344 a pound on the ICE Futures U.S. exchange, but failed to break out of the tight trading range of $1.31 to $1.37 cents it has been stuck in for nearly a month.
The weakening dollar is generally seen by traders as a boost for dollar-denominated goods like coffee as commodity-producing countries such as Brazil, the world's largest coffee grower, tend to hold back on sales and wait for more favorable exchange rates to recoup more of their local currencies.
At the same time, when the value of the dollar drops, countries around the world that purchase coffee in currencies other than dollars have more buying power as it takes less of their currencies to purchase a dollar.
The Wall Street Journal dollar index, which measures the dollar against a basket of currencies, was down 0.7% recently.
Mike Seery, president of Seery Futures said he is waiting until coffee futures rise to $1.3775 a pound before taking a long position in the market. Daily news headlines about U.S. President Donald Trump, he said, won't give the dollar a fundamental reason to continue to fall.
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"The only reason the dollar is going lower is because of the Trump administration. There's panic. But this is political stuff. But this stuff doesn't last," he said.
Many agricultural commodities have strong demand but a lack of fund interest, he said.
A seasonal pattern in coffee this time of year also helped boost futures. The month of May is known for rallies over frost concerns in Brazil and the potential for heavy rains, said Judith Ganes Chase, president of commodities research firm J. Ganes Consulting LLC of New York.
"The back side to the May rally is the decline in prices thereafter as the Brazilian harvest accelerates and supplies weigh on the market. Once it appears that the winter will be frost free, speculative longs exit the market," she said.
The earliest recorded frost was May 30, in 1979, she said.
MDA Weather Services said Wednesday that rains late this week will likely stall early coffee harvesting in southern Minas Gerais and Sao Paulo.
In other markets, raw sugar futures for July notched a third session of gains, rising 2.6% to end at 16.30 cents a pound, a three-week high as the dollar slumped against the currency of Brazil, the world's largest producer of sweetener.
Societe Generale said in a note that sugar traders should look out for a correlation between June crude oil and sugar, with crude breaking above $50 a barrel. Higher prices for oil could encourage sugar producers to turn more heavily toward the fuel market, converting a larger percentage of cane to ethanol.
Brazil's industry group Unica said in its latest report that the percentage of cane used to produce sugar at mills in the country's key center-south region has been higher than analysts had expected. According to Unica, the percentage of cane used to produce sugar came in at 43% during the reporting period, higher than Platts' forecast of 42.3%. A year earlier, the mix was 42.9% toward sugar.
Cocoa for July rose 1% to settle at $2,054 a ton, frozen concentrated orange juice for July lost 1% to end at $1.419 a pound, and July cotton lost 1.4 to settle at 80.17 cents a pound.
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(END) Dow Jones Newswires
May 17, 2017 16:37 ET (20:37 GMT)