* Analysts revise coffee price estimate up to $3/lb
* Noncommercial interest seen lifting market
* Rising open interest adds to market's bullish mood
Arabica coffee futurestrading on ICE will reach $3 per lb in the near future as demand holds and supplies of the high-quality beans are tight,while recent harvests and hesitant roasters are temporarilylimiting the ascent, analysts said.
"Three dollars for coffee is only 15 cents away, so it is within shooting range by specs," said Rodrigo Costa,
vice-president of Institutional Sales for Newedge USA.
"The lack of selling could take prices higher easily, and technically the market is favoring bulls to charge into theirlongs." Noncommercial buying has recently been attributed for lifting the market that has rallied for months on supply
concerns.
The benchmark May arabica futures contract trading on ICE Futures U.S. moved closer towards $3 per lb on Tuesday, climbing 6.30 cents intraday to $2.8745, the highest level for the second position since 1977.
The rallying coffee futures market has doubled in value in a sustained rally that began in June 2010. Depleting stocks and expectation for a poor upcoming mitaca crop in top washed-arabica grower Colombia, will keep the near-term price high, analysts said.
The spot March contract , now in its thinly dealt delivery period, was up 6.05 cents at $2.87 per lb, the highest since May 1997 on a continuation chart.
In January, analysts and traders forecast a median price for the spot arabica futures contract at $2.49 per lb by the end of March. Current conditions have caused many of these analysts to revise this to $3.
"Continued speculation, higher overall commodity prices for all softs, the ongoing turmoil in the Gulf/Libya, disappointing crop reports from multiple regions, and increased consumption are all contributing," said Jonathan White, executive vice president of White Coffee.
Long Island City-based White Coffee buys, roasts and distributes coffee. White revised his price forecast for the now-benchmark May contract to $2.95 per lb by the end of the
month, from $2.24, with the expectation that it will hit $3 before mid-April.
"Pricing has increased steadily and I feel the market just needs a little more time for all of these factors to contribute to the sustained rise," White said.
Another reason it has not yet reached $3 is that Central America, which produces high-quality arabica at high altitudes, is just coming out of its harvest period, analysts said.
ICE certified arabica stocks have dropped below 1.6 million bags by March 7, the lowest level in 11 years, ICE data shows.
OPEN INTEREST CLIMBS
Noncommercial market players, such as funds, have recently liquidated some long positions but continue to hold a hefty net long position at 31,256 lots, roughly 25 percent of total futures open interest at 127,412 lots, by March 7.
Open interest rose for the fourth straight day Monday, up from last week's one-year low at 121,382 lots, while it climbed for the 16th straight day to 166,614 lots in options, a one month high.
"The higher futures and options open interest seems to tell us that there are currently a lot of bulls in the market that are looking at higher prices over a longer horizon," said Mu Li, commodity analyst with CPM Group in New York. Li revised her forecast for the benchmark contract to reach $3 per lb or higher by the end of March, from $2.43.
Jack Scoville, analyst with Price Futures Group in Chicago, said this data indicates the market may soon become overbought.
He revised his end-March price forecast to $3 per lb, from $2.50.
Revised forecasts for ICE arabica coffee prices in U.S. cents a pound basis benchmark "C" contract:
End Q1 End 2011
The Price Group 3.00 2.95
White Coffee 2.95 2.95
Heritage West Financial 2.50 3.00+
Country Hedging 3.00 4.14
Hackett Financial Advisors 3.00 4.00
CPM Group 3.00+ 2.60
Unattributable 3 3.00 4.00
Unattributable 6 3.00 2.50
