London coffee ends down after touching highs

LONDON, Sept 6 (Reuters) - London front-month robusta coffee futures settled lower on profit-taking on Wednesday after touching a fresh 7-1/2-year high for the third day this week on short covering, dealers said.

"The market took a bit of a breather today," one dealer said, adding trading has been relatively quiet compared with previous sessions.

Front-month September ended down $24, or 1.2 percent, at $2,000, the bottom of the day's range, after touching a peak of $2,063, its highest since November 1998. Total volume was a moderate 11,651 lots.

"Pain is undoubtedly being inflicted on some 'naked' shorts," UK-based broker Sucden said, referring to those who had bet on a price fall by selling.

The front-month has risen about 12 percent since Monday and prices are about 40 percent higher than at the start of the year.

News of flood damage to exchange stocks in Italy just as supplies from the world's number one robusta producer Vietnam started to run out lifted the market in recent weeks.

"Speculators like the London market -- they make money buying it," Sucden added in a daily note.

Traders and analysts said it seemed that a large fund had taken a long position and either trade or industry buyers were struggling to cover their short positions, driving up the September contract.

LIFFE's issuers and receivers report for September robusta showed Fortis Bank had taken delivery of 1,496 lots out of 1,514 offered for tender since September 1, when the front month went into its delivery period.

PREMIUMS UP

Traders said the premium for the September over the benchmark November contract might increase significantly from its present level around $411, around its highest for several years.

"It (premium) could go further yet. If the shorts can't get hold of the coffee, it could go to $600, $700 even $800," a trader said.

Analysts said tight supply would keep prices high until 2008 and the premium between the front two months could grow until March.

Dealers said news of light frosts in Brazil, the world's key coffee producer, was feeding already bullish market sentiment, but without propelling the market significantly higher.

"It seems... people have already factored it in," one dealer said of the latest weather news.

A light ground frost was seen on some properties in Brazil's main coffee region in South Minas Gerais state overnight, with temperatures ranging from 3 to 5 degrees Celsius (37-42 Fahrenheit), industry workers said.

London's benchmark November contract, which had risen on the back of spill-over buying to hit a 7-1/2-year high of $1,618 in the previous session, trading down on profit-taking earlier in the session but then rallied.

The November contract settled up $6, or 0.4 percent, at $1,589 after moving between $1,604 and $1,565.

+++++

Nybot Coffee Review: Up Slightly After Scaling Tue High

NEW YORK (Dow Jones)--Arabica coffee futures ended firmer on the New York
Board of Trade on Wednesday after the market recovered from a test of Tuesday's
low and briefly scaled that day's highs with speculative buying.
December closed up 5 points at $1.1035 a pound and March gained 5 points to
$1.1415.
"We took a peak at the downside gap, but recovered with speculative buying
and short covering," a desk trader said. "A fund that's believed to be short
New York and long London was a seller again today, and has been selling
recently."
"Brazil's been dry, but they're heading into the rainy season so it's too
early to say they're in a drought," he continued. "It's surprising that Brazil
had some frost this morning and yesterday, but it was patchy and mostly away
from growing areas."
The Nybot December-March spread ended at 380 points, unchanged from Tuesday.
Futures volume was estimated at 9,591 lots and in the options ring, 5,861
calls and 2,829 puts traded.
Light frost in southern Minas Gerias, Brazil early Wednesday posed little
threat to trees, traders said. Brazil's groves should be mostly dry through
Saturday, according to DTN Meteorlogix. Rain has been below average in most
Brazilian coffee areas for months, and moisture is needed for the October bloom
of the next crop.
Brazil in August exported 2,458,524 bags, up 19% on the year, according to
the Green Coffee Exporters Council.
Meanwhile, North American and European roasters are procuring beans to meet
peak winter demand.
Coca-Cola (KO) on Wednesday introduced coffee and tea beverages, under the
brand name Far Coast, in Toronto.
Tightness in Asian robusta beans continues to buoy Liffe, and is in turn
helping New York prices.
Nybot December finds support at a gap at $1.0920 to $1.0845 and resistance at
$1.1120-$1.1125, $1.1150, $1.12, $1.1225 and $1.1250.
Nybot October coffee options expire Friday.

London coffee hits new highs on short covering

LONDON, Sept 5 (Reuters) - London robusta coffee futures rose to new 7-1/2-year highs on short covering on Tuesday, dealers said, adding that worries over the weather in Brazil were fuelling bullish sentiment ignited by tight supply.

Analysts said they saw prices remaining high as far forward as 2008.

The front-month September contract closed up $124, or 6.5 percent, breaking the psychological $2,000 level to finish at $2,024 a tonne after touching $2,047, its highest since November 1998.

"It (the market) is building on short covering. Pressure is on the shorts," one dealer said.

Traders said the buying on the front-month contract was spilling over into the benchmark November contract , which closed up 1.7 percent at $1,583, off a new 7-1/2-year high of $1,618 on a continuation basis.

Total volume across all the contracts was a strong 18,098 lots.

September's premium against November rose to a multi-year high of $463, which dealers said showed supply was tight and fundamentals strong.

Robusta prices, which are about 34 percent higher than at the start of the year, have soared in recent weeks after news of flood damage to exchange stocks in the Italian port of Trieste, just as supplies from the world's number one robusta producer Vietnam started to run out.

STOCKS RUN DOWN

Helmut Ahlfeld of German analyst F.0. Licht said current supply tightness was expected to be resolved by the next Vietnamese crop, but that 2007/08 could see a significant supply shortage.

"In the end, 2006/07 is expected to be balanced...The problem could be 2007/08, if the Brazilian crop is as bad as producers say," Ahlfeld said.

Kona Haque, commodities analyst with the Economist Intelligence Unit, saw prices remaining high until the last quarter of 2007.

+++++



NY coffee gains on robusta squeeze, Brazil chill

NEW YORK, Sept 5 (Reuters) - Arabica coffee futures climbed nearly three percent on Tuesday, fueled by market worries about tight robusta supply and cooling temperatures in top coffee producer Brazil, market sources said.

The New York Board of Trade's arabica coffee contract for December delivery rose 2.70 cents to settle at $1.1030 a 1b, the loftiest finish since Aug. 25, after trading from $1.0920 to $1.1080.

March arabica likewise gained 2.70 cents to end at $1.1410 a 1b and back months advanced 2.65 to 2.70 cents.

"In the short term, the London market is really helping," said Rohit Savant, a commodities analyst at CPM Group.

Indeed, nearby robusta futures prices in London have been hovering at their loftiest levels in more than seven years thanks to a near-term supply crunch for the bean mainly used for soluble coffee.

The LIFFE's benchmark November robusta contract settled up $27 at $1,584 a tonne, or 71.85 cents a 1b. By comparison, the front-month September robusta surged 6.5 percent to end at $2,024 a tonne, or 91.80 cents a 1b.

"It's hard to watch one variety of coffee skyrocket and sell yours," said James Cordier, president of Liberty Trading Group. "The shortage is going to last another 35 to 40 days and then there is going to be ample robusta. But for now, if you are short the market, you don't have anything to deliver," he said.

Limited supplies of fresh robusta beans from top grower Vietnam have hit the market but prices, supported by thin stocks, were still at record highs, traders from the region said [nHAN312730].

Meanwhile, temperatures in Brazil's south fell to their lowest levels in decades after a polar air mass followed rains into the region, but there was no threat of crop-damaging frost, said private Brazilian forecaster Somar [nN050FWEAT].

On Wednesday morning, temperatures in the top coffee growing state will fall to 1 degree Celsius (34 Fahrenheit) at the Pocos de Caldas airport. But temperatures in other nearby producing regions will not fall as low, Somar said.

Frost could harm the coffee trees developing for the 2007/08 crop, which is already expected to be significantly smaller than the 41.6 million 60-kg bags officially estimated for the 2006/07 crop.

"Very cool temperatures tonight are not expected to be damaging to trees," said U.S. forecaster Meteorlogix. "Weekend rainfall in major coffee areas of Sao Paulo and Minas Gerais, Brazil, has helped to improve conditions for the upcoming spring flowering of the trees," it said.

Still, the Brazilian government-run National Meteorological Institute (Inmet), which is traditionally more bullish on frost in Brazil, said there was still a risk of crop damaging cold in southern Minas and northern Sao Paulo.

Elsewhere, coffee exports in Costa Rica rose 9 percent in August versus the same month a year ago, but cumulative exports from the October-August growing season were down 12 percent at 1.38 million bags compared with the same period in 2004/05, growers group ICAFE said.

NYBOT arabica futures trading volume reached an estimated 13,392 contracts, up from the 10,146 lots officially tallied the previous session.

Market Watch

by Pearce Financial, LLC
September 4, 2006

December corn finds near term resistance is at last week's high of $2.482. If the market tops this high look for it to tag the current major daily Fibonacci .382 retracement at $2.544 (as measured between the contract high of $2.88 and the current contract low of $2.334). Further resistance is at the August high of $2.66 (all-session chart) in confluence with the current major daily Fibonacci .618 retracement at $2.672 (as measured between the contract high of $2.88 and the current contract low of $2.334). If December corn clears this resistance level it might pop up to the July high of $2.844 (all-session chart) or even test the contract high of $2.88 (all-session chart). Near term support is at the daily August low of $2.334 (all-session chart). Further support is located between the August low of $2.166 on the weekly continuous chart and the major weekly Fibonacci .618 retracement at $2.156 (as measured between last year's low of $1.856 on the weekly continuous chart and this year's current high of $2.642 on the weekly continuous chart). Failure to establish support here could bring the market down to this year's low of $2.034 on the weekly continuous chart. Open Interest is sitting flat near the all-time high. The Seasonal index shows that corn should decline in September. Commercial interests are holding the smallest net short position in five months. Large traders are holding the smallest net long position since late March. Small traders are holding a sizable net short position.

December wheat finds near term resistance clustered between last week's high of $4.244 (all-session chart), the August high of $4.252 (all-session chart), and the current major daily Fibonacci .618 retracement at $4.30 (as measured between the contract high of $4.63 and the August low of $3.766). A strong close above this resistance area could clear the path for a return to the contract high of $4.63. If December wheat hits a new contract high it could be gearing up for a run to the psychological five dollar area. Near term support is at the August low of $3.766. Further support is at a major weekly Fibonacci .618 retracement at $3.40 (as measured between between the 2004 low of $2.824 on the weekly continuous chart and this year's current high of $4.33 on the weekly continuous chart). A break below it could allow the market to decline to this year's current low of $3.214 on the weekly continuous chart. Open Interest has been flat for two months now. The Seasonal index shows that wheat should move sideways in September. Commercial interests are holding the biggest net long position that they have had yet this year. Large traders are holding the biggest net short position in seven months. Small traders are holding largest net short position that they have ever had.

December coffee finds near term support at the current daily Fibonacci .618 retracement at 104.10 ( as measured between the contract low of 98 cents and the August high of 114.00). A break below this retracement could send coffee down to test the contract low of 98 cents. If December coffee makes a new low expect it to hit this year's current low on the weekly continuous chart at 93.50. Further support is at the weekly December low of 90.75. Near term resistance is at the August high of 114.00. Further resistance is at the May high of 119.70 in confluence with the current major daily Fibonacci .618 retracement at 120.25 (as measured between the daily January high of 134.00 and the current contract low at 98 cents). If the rally does not end here coffee may visit this year's current high on the weekly continuous chart at 125.90. The Robusta coffee (traded on the EURONEXT Commodities exchange in Europe) has been the coffee market to be in! This market has substantially outperformed the New York coffee market on a comparative basis. Robusta coffee has surged to the highest price since March of 1999, the market is in backwardation (front month delivery contracts are trading at a premium to deferred contracts), and the price structure has been very bullish: On the monthly chart, November Robusta coffee has only broken a previous month's low once in the last five months, it has made higher monthly highs for five consecutive months, and it has not closed below the monthly 18-bar Moving Average since October of 2004. On the weekly chart, November Robusta coffee has only broken a previous week's low once in the last five weeks and it has made higher weekly highs for five out of the last six weeks. On the daily chart, November Robusta coffee has closed above the 18-day Moving Average every day for over a month. Coffee traders should be long in the Robusta coffee as long as it continues to outperform the New York coffee market. Open Interest is at the lowest level since early May. Seasonally, coffee should be flat to lower in September. Commercials are holding the biggest net short coffee position since the beginning of May. Large traders (hedge funds) are holding the largest net long position since then. Small traders are neutral on the coffee market.

November orange juice may have made a significant trend reversal last week. After opening gap up on the daily and weekly charts, the market reversed and filled the gap the same day. This triggered a Gap & Fill sell signal on both time frames. After taking out the previous week's high OJ then closed below the previous week's low. This created an outside reversal down on the weekly chart. Additionally, the market closed below the 18-day Moving Average for the first time since late July. Near term support is last week's low of 177.50. If the market breaks it, traders may want to consider getting short and entering a protective buy stop to liquidate if it breaks to new contract highs. Further technical support is at the daily August low of 168.50 (November OJ has only broken a previous month's low once in the last twelve months) followed closely by an intermediate daily Fibonacci .618 retracement at 166.70 (as measured between the July reaction low of 153.50 and the current contract high of 188.05) and the weekly 18-bar Moving Average (OJ has closed below the weekly 18-bar Moving Average just one time since it closed above it in mid-September). Further support is at the July reaction low of 153.50. Near term resistance is at the contract high of 188.05. Further resistance is at the two dollar mark. If the market does not stop here it should take on the 1990 multi-decade high of 206.50. Open Interest is up a bit from last month. The %R overbought/oversold indicator shows that OJ is overbought on the daily, weekly, and monthly charts. Seasonally, OJ should decline in the first half of August and then rally for the rest of the month. Commercials are holding the biggest net short position since mid-May. Large traders are holding the biggest net long position since then. Small traders are neutral to bullish.

State producing banner corn crop

Sep 04, 2006 (Messenger-Inquirer - McClatchy-Tribune Business News via COMTEX) -- Kentucky corn growers will have another banner crop to crow about this year. The U.S. Department of Agriculture is also expecting a record national crop.

"It's clearly a historic crop by any means," said Steve Riggins, a grain marketing expert with the University of Kentucky.

It even seems possible farmers will harvest the third-largest corn crop in the nation's history.

However large the corn yield, it won't be enough to keep up with demand.

With China and India clamoring for U.S. corn -- and with seemingly everyone constructing or at least thinking about building an ethanol plant -- corn is likely to remain a hot commodity for at least the next couple of years.

"It could be several years of good profits," Riggins said of what he calls the "ethanol bubble." "I think there's little danger of it collapsing in the next 24 months."

Corn growers in Kentucky and Indiana had excellent growing seasons. Even the Midwestern corn belt, which suffered some drought, is expected to produce at least an average corn crop.

"The yields don't look like they're going to be much reduced," in the Midwest, said Chris Hurt, a grain marketing specialist with Purdue University.

"From the farmers' standpoint ... they feel successful if they have a large crop, and that's looking really good," Hurt said.

The country also has an ample stock of corn in reserve. While the combination of a bumper crop and a large pool of corn would seem to be bad news for farmers, demand will continue to outstrip supply.

"When you combine the fact that you have this huge change in global demand that appears to be a permanent shift (with demand for ethanol), the talk is extremely bullish," Riggins said. " ...Almost everyone accepts it's the third-largest crop in history and it's not enough to (match) consumption."

"We're actually going to end up with much lower inventories of corn," Hurt said. "Ethanol is expected to grow dramatically. .... That's going to require a lot of corn."

Selling corn at harvest will not be the best option. Prices are historically low at harvest but rise as the winter progresses. A farmer who can store corn away will benefit from the decision.

By spring or early summer of 2007, corn prices could be about $2.75 a bushel, Hurt said

"Storage should be quite beneficial for corn," Hurt said.

Although this year's crop isn't even out of the field, farmers need to start planning for next year's crop, Riggins said.

For example, a farmer might be tempted to plant some winter wheat acres to take advantage of good wheat prices. But planting wheat will make those acres unusable for corn planting next spring.

"If you seed that wheat, you might be giving up the ability to raise $3.50 or $4 corn next year," Riggins said.

Another question farmers have to answer is whether to sign contracts that guarantee a specific price, or to hold out in the hope corn prices will continue to drift upward.

While Riggings doesn't expect the ethanol bubble to pop in the next 24 months, he said nothing is permanent.

"I would certainly say it won't last forever," he said.

Fortunes Made: Repeat in the Making?

By George Kleinman
24 Aug 2006 at 01:51 PM EDT

RENO (Future Market Forecaster) -- During the summer of 1995, few people had any clue that the biggest bull run in the history of the corn market had already begun. Prices had dropped from mid-July into mid-August because the government, in its mid-August crop report, indicated the U.S. would produce a record corn crop - similar to this year.

It was clear by the end of 1995 that a large crop wasn’t sufficient to keep prices down; corn prices rallied to record highs. But the real fireworks had yet to begin.

Fortunes were made in corn during 1996 when corn rocketed to $5.545 per bushel, but not many people realized during the summer of 1995 what was about to happen. Those fortunes were made by relatively few people.

Today, I see signs of complacency among corn buyers similar to those of the summer of 1995. The 1995-96 bull market was a classic demand-driven rally. The factors setting up today are, in my opinion, parallel to the factors that caused that dramatic bull move.

A number of factors contributed to the price spike a decade ago, but the most significant was a demand shock the likes of which hadn’t occurred since the mid-1970s and hasn’t since. Unknown to the marketplace during the summer of 1995 was that China, Asia’s largest corn exporter, was turning into a corn importer due to a poor crop. The U.S., the world’s largest exporter, produced a record crop in 1994-95 of 10 billion bushels. As a direct result of added Chinese demand (on top of normal export demand from Japan, the U.S.’ largest customer, and others), total exports surged.

In 1995, the world believed there was a huge stockpile of corn. But in 1996, a buying panic set in when the new crop looked to be smaller than average. Livestock and poultry feeders and industrial corn users worried the world was about to run out. As a result, prices surged above $5 per bushel - a level reached neither before nor since. We now know the world didn’t run out of corn; instead, record-high prices rationed demand, subsequent crops replenished stocks and prices retreated all the way back.

Here’s the Bottom line for the Current Market

Similar to the 1995-96 market, I believe the dynamics are in place for the next classic demand-driven bull market in corn. Last week I recommended that Futures Market Forecaster subscribers start accumulating positions in July 2007 corn futures. At this time, we’re risking less than $1,000 per contract traded and will look to reduce this risk over time.

The reward potential is amazing, many times the risk. There are no guarantees, and there's certainly risk in every trade. However, I’ll be looking to add to this position over time to hopefully pyramid into an extremely profitable trade.

Right now - when corn buyers are looking at a big crop (an expectation already reflected by cheap prices) and complacency has set in - I believe the corn market is forming a significant bottom. Just as the era of cheap energy is behind us, 2006 is the last year of cheap corn. The reason is ethanol.

With 100 ethanol plants either already up and running or close to production and another 35-plus due to come online next year, corn usage for fuel will surge. An average ethanol plant uses 18 million bushels of corn annually. Corn usage for ethanol will grow in 2006 by 300 million bushels versus last year and is projected to rise by more than 500 million bushels in 2007 versus this year. Even if 4 million or 5 million additional acres are planted next year, there’s no way demand won’t exceed supply by a wide margin in 2007.

This demand growth number is almost half of projected ending supply. For the first time ever, corn usage for ethanol will exceed corn exports. I believe July 1996 could be an analog of the July 2007 contract. In 1995-96, China provided the demand shock. This time the demand shock is ethanol, but the ramifications to the corn market are the same.

The July 1996 corn futures contract actually bottomed in December 1994, but there was a significant correction for a test of the lows in August 1995. (As I indicated, this year’s chart looks a lot like that year’s.) August 1995 was the time to load up on the July 1996 contract because prices bottomed at that time and remained in a major bull market until July 1996.

The July 2007 contract low was registered last December at 254. I believe this price will hold as the contract low. The market has now broken more than 40 cents from the mid-July top, and the bearish sentiment is high right now (just like it was in August 1995, right after the crop report that year).

One additional point: If there are any weather problems during next year’s growing season that create a supply shock, the perfect storm will take place. It could be a history-making bull market with the potential for new all-time-high prices. Should this unfold, we’ll also look to purchase the December 2007 futures contract. But we know nothing about next year’s crop, and today I’m looking for demand alone to pull prices higher (even assuming a good 2007 crop).

Right now appears to be the perfect time to begin accumulating a position, one we’ll look to pyramid over time as the market confirms our expectations.

Copyright © KCI Communications, Inc. 2006

George Kleinman is Editor of the futures trading service Futures Market Forecaster. Click here now to try a risk-free 90-day subscription to Futures Market Forecaster. He is also President of Commodity Resource Corp., a futures advisory and trading firm.

Jim Rogers Gives Kudos to Agricultural Commodities

By Lindsay Williams
12 Jun 2006 at 10:47 AM EDT

JOHANNESBURG (Business Day) -- Former George Soros partner in the Quantum Fund, Jim Rogers talks to Classic Business Day about his bearish outlook for the U.S. markets and the dollar, and his bullish commodities views especially with regards to agriculture.

LINDSAY WILLIAMS: When Classic Business Day spoke to Jim Rogers in December 2005 he had some fairly strong things to say about the U.S. stock market, the U.S. economy, the dollar, and incoming U.S. Federal Reserve head Ben Bernanke: “I’m not too optimistic about the U.S. stock market in 2006 - the economy will slow down, the market will slow down. The market’s been flat for a couple of years now, basically. Ben Bernanke will be a disaster for the U.S. Federal Reserve - his solution to everything is to print money. I’m not optimistic about the dollar, the stock market or the economy in the U.S. next year.” Jim, good evening.

JIM ROGERS: I’m delighted to hear that I got it right!

LINDSAY WILLIAMS: You got it right in spectacular fashion - do you really think Ben Bernanke is the cause of all the recent problems?

JIM ROGERS: No, of course he’s not the only cause - there’s lots of reasons. Just as I said last year inflation is coming back, prices are higher, interest rates are up, you’ve got an incompetent running the U.S. Federal Reserve, and America is overextended in the world including Iraq. There are lots of reasons for the market to be down - he’s just one of them. He’s going to make it worse - not better.

LINDSAY WILLIAMS: He gave CNBC presenter Maria Bartiromo that comment.

JIM ROGERS: If the press were his only incompetence we would be lucky! I’m afraid he’s incompetent in more ways than that - he doesn’t understand the economy, he doesn’t understand the markets, and he doesn’t understand the press - but with all due respect who cares about the press? We care more about the market and the economy than we do the press.

LINDSAY WILLIAMS: I’m not the press - I’m a broadcaster! The inflation problem - that seems to be the root of all stock market evil at the moment. Is that right at the top of your bearish list?

JIM ROGERS: It’s certainly one of the major reasons. We do have inflation - prices are going up, and they’re going to continue to go up. That has never been good for anybody except people who benefit from inflation - but for the mass of us it’s not good.

LINDSAY WILLIAMS: After inflation - any more problems?

JIM ROGERS: Sure, there’s the U.S. international debt - the U.S. is the largest debtor nation the world has ever seen. We owe the rest of the world $8 trillion or $9 trillion. That’s bad, but the worst is that our foreign debt is increasing at the rate of $1 trillion every 15 months! Do the arithmetic - it’s simple arithmetic, but it’s terrifying arithmetic.

LINDSAY WILLIAMS: Yes, it is terrifying - it’s also fairly terrifying after a few years of sideways movement on the Dow Jones, the Nasdaq, the S&P etcetera - but suddenly we’ve started to break downwards. I’m no chartist, but when I look at the graphs it really does look as though this thing could go so much lower.

JIM ROGERS: It will. I’m not a chartist either - but I do know it will probably go down a great deal more before it’s over. It’s not the end of the world - we hope it’s just a bear market. If it’s the end of the world then of course we’re all in trouble. I suspect that this time it’s just going to be another bear market - it might be a serious bear market, but we’ve had bear markets since the beginning of time.

LINDSAY WILLIAMS: We can always take advantage of bear markets of course because of the wonderful world of derivatives. Commodity prices have come down a bit since we last spoke - is it just a correction in a bull market?

JIM ROGERS: Yes in my view. Some commodities are not down - cotton is up, and agricultural commodities have actually been doing very well. Everybody looks at gold and copper - and perhaps oil - but underneath there are several commodities that are still doing well. It would be wonderful from my point of view if we had a nice correction in commodities - because we need one. Things that just never go down - that’s a dangerous kind of market - so I’m hoping for some more corrections.

LINDSAY WILLIAMS: That agricultural side of things is quite exciting.... Are those still your top picks of the commodity sector now?

JIM ROGERS: Yes, if I were looking for new opportunities in commodities I would be looking at agriculture - that’s where some great things are happening, and that’s where you’re going to find some opportunities, at least in my view.

A Look Into Jim Rogers' Crystal Ball

By Lindsay Williams
01 May 2006 at 09:38 AM EDT

JOHANNESBURG (Business Day) -- Jim Rogers shoots to prominence as co-founder of Quantum with U.S. multi-billionaire George Soros. The international best-selling author more recently achieves investment cult status with prophetic views on commodities. Below is an interview with Classic Business Day on the current state of the market.

LINDSAY WILLIAMS: Jim Rogers has been on Classic Business Day a few times, and his preference for commodities has proved spectacularly correct - maybe more correct than even Jim thought! Jim, as I said in my introduction, commodities continue moving up, but it seems to be gathering momentum - have these moves surprised you at all?

JIM ROGERS: Not in general terms - it has more than tripled in the last seven-and-a-half years. As you may remember I started a commodities index fund on 1 August 1998 - it’s up maybe 250% since then, which is a pretty hefty move - but it’s seven-and-a-half-years. In the end - as with all bull markets - when we get to the end in five, 10 or 15 years it’s going to startle everybody, including me, and I’m the bull. But that’s the way bull markets are - who would’ve thought that the Nasdaq would have gone up 10 times, who would’ve thought that Cisco would’ve gone up 100 times in the stock bull market - but that’s what happens in bull markets.

LINDSAY WILLIAMS: The bull market in oil has continued to surprise people it got very close to $75 a barrel the other day, maybe we could start with that - has it still got legs?

JIM ROGERS: Sure, and how. There may well be some setbacks - there should be - but adjust it for inflation and oil should be over $100 a barrel, and it’s going to go there because nobody’s discovered any giant oil fields in over 35 years. We just don’t have any oil - maybe there’s a lot of oil out there, but nobody knows where it is - so until somebody comes up with a lot of new supply of everything, the prices are going to be amazing.

LINDSAY WILLIAMS: Talking about inflation-adjusted prices - somebody suggested that the gold price should be over $2,000 an ounce. It’s currently around $650 - do you think there’s any chance we could get anywhere near that number?

JIM ROGERS: There’s no question that in every bull market, and in any asset class throughout history - in the end nearly everything makes a new all-time high. Gold’s old all-time high was $875 - unadjusted for inflation - so we’re certainly going to go to $900 or $1,000 and that’s in the cards. I’m we will get to $2,000 on an adjusted basis, but not this year or next year, but certainly in the next 10 years everything is going to go to astonishing levels. By the way, I’m probably less bullish on gold than I am on most things - but most mines are depleting, and every other kind of mine - so there are problems brewing in all raw materials.

LINDSAY WILLIAMS: When you say that you’re not as bullish on gold as others, that’s all relative - what would be your chosen commodity if it’s not gold?

JIM ROGERS: I’m not smart enough to tell you which is the best one right now - I can tell you if I were looking for new opportunities, it would be looking in the agricultural area. Those are the places where they haven’t moved up nearly as much on a historic basis, and where there are positive fundamental changes taking place - so that’s where I would be looking.

LINDSAY WILLIAMS: Sugar has done very well indeed -we spoke about that about six months ago. It has gone to about 18 cents per pound from its low not that long ago of 2.5 cents a pound. The corn market seems to have gone completely flat - maize as we call it in South Africa - is that one you’d pick?

JIM ROGERS: Yes, I would definitely be looking at maize - there’s no question about that, especially given that the US is about the throw huge amounts of money at maize to turn it into ethanol. It’s absurd - because it’s uneconomic, and it’s just a huge subsidy to buy some votes from the Republicans - but who cares? They’re going to throw the money whether I like it or not - so certainly there’s going to be great opportunities in maize.

LINDSAY WILLIAMS: Apart from the fundamentals that I know you’ve been very keen on - the Chinese economy, and the Indian economy - there other things out there as well. The last few days has seen a tumble in the U.S. dollar, also we’ve seen political considerations start to raise their head again with the Iran nuclear stand-off - are those things you watch very carefully?

JIM ROGERS: I try to watch everything very carefully - if you’re going to be an investor you’d better watch everything very carefully, and even then you’re probably going to make mistakes, I certainly do. Yes, geopolitical considerations are major - whether we like or not the oil is in the Middle East, and that’s where there are potential problems - but there are also potential problems in other oil countries. Equally important is that all the oil fields in the world are in decline because there haven’t been any gigantic discoveries in over 35 years.

LINDSAY WILLIAMS: Yes, and statistics from the U.S. government says there were 11,000 terror attacks last year - 14,600 people dying, more than 30 a day - and that doesn’t look as though it’s going to get any better. What’s the general feeling from the American public about the situation with Iran? Do you think that Donald Rumsfeld and US president Bush might actually do something about this situation?

JIM ROGERS: I would be dumbfounded, amazed if they did - because it would be such a foolhardy thing to do - but these guys have proven themselves very capable of doing foolhardy things, so I would not put it past them. It would be a major disaster for the world, for the rand, for the U.S. - for all of us - but that doesn’t mean these guys won’t do it, because they really believe that they’ve got the message and nobody else does.

LINDSAY WILLIAMS: One thing that seems to surprise people over here is the resilience of the U.S. stock market - we’ve seen a little bit of a crack today with Microsoft coming down, but even then the major indices all hovering near multi-year highs - what’s your view on U.S. equities?

JIM ROGERS: First, let me just point out that the last couple of years they’ve been flat. They were very good in 2003 but in 2004 and 2005 they were essentially flat - they were up a bit this year, but over the past two-and-a-half years they were not up very much. Maybe some are, but the general averages are not. I expect a U.S. general recession sometime later this year - or certainly within a year - and you’re going to see bad things happening in the stock market as result. I would not be buying U.S. stocks.

LINDSAY WILLIAMS: So we stick with commodities?

JIM ROGERS: Yes, if you got to own something - and I guess we all do - one of the things that you should consider owning is commodities, especially agricultural commodities. If there is a recession commodities may go down, but they’ll go down less than everything else - and they will be the first thing to start rising again, just as they have in the past seven-and-a-half years.

Wheat Rises, Capping Biggest Monthly Gain in at Least 7 Years

By Claudia Carpenter

Aug. 31 (Bloomberg) -- Wheat rose in Paris, capping the biggest monthly gain in at least seven years, amid forecasts that India, the world's second-largest consumer, will increase imports and a heat wave will curb European production.

India may import as much as 8 million metric tons of the grain this year, resuming purchases after a six-year gap, the U.S. lobbying group U.S. Wheat Associates said. The global wheat harvest will be the smallest in three years because of damage to European crops, the International Grains Council said last week.

``Eight million tons is quite a lot,'' said Sorin Vasloban, a commodities trader at brokerage Plantureux SA in Paris. ``The problem in Europe is we will have less milling wheat and more feed wheat for the animals because quality was affected by rains.''

Milling wheat futures for November delivery rose 3.50 euros, or 2.5 percent, to close at 143.50 euros ($184) a ton on Euronext.liffe in Paris. They have soared 14 percent this month, the biggest monthly gain since at least January 1999.

India's projected imports of 4.5 million tons for this year will ``likely be raised in the months ahead,'' said Amy Reynolds, an economist at the London-based Grains Council. The country ``potentially could be the largest importer in the world this year.''

Egypt is the world's biggest importer, at 7.2 million tons, she said. China is the biggest consumer.

Dry weather in France and Germany spurred the Grains Council on Aug. 24 to reduce its estimate of global wheat output to 593 million metric tons from 596 million tons a month earlier. Dry conditions also damaged crops in the U.S., Australia and Argentina.

Ethanol could leave the world hungry

One tankful of the latest craze in alternative energy could feed one person for a year, Lester Brown tells Fortune.
FORTUNE Magazine
By Lester Brown
August 16 2006: 5:39 AM EDT

(Fortune Magazine) -- The growing myth that corn is a cure-all for our energy woes is leading us toward a potentially dangerous global fight for food. While crop-based ethanol -the latest craze in alternative energy - promises a guilt-free way to keep our gas tanks full, the reality is that overuse of our agricultural resources could have consequences even more drastic than, say, being deprived of our SUVs. It could leave much of the world hungry.

We are facing an epic competition between the 800 million motorists who want to protect their mobility and the two billion poorest people in the world who simply want to survive. In effect, supermarkets and service stations are now competing for the same resources.

This year cars, not people, will claim most of the increase in world grain consumption. The problem is simple: It takes a whole lot of agricultural produce to create a modest amount of automotive fuel.

The grain required to fill a 25-gallon SUV gas tank with ethanol, for instance, could feed one person for a year. If today's entire U.S. grain harvest were converted into fuel for cars, it would still satisfy less than one-sixth of U.S. demand.
Worldwide increase in grain consumption

The U.S. Department of Agriculture reports that world grain consumption will increase by 20 million tons this year, roughly 1%. Of that, 14 million tons will be used to fuel cars in the U.S., leaving only six million tons to cover the world's growing food needs.

Already commodity prices are rising. Sugar prices have doubled over the past 18 months (driven in part by Brazil's use of sugar cane for fuel), and world corn and wheat prices are up one-fourth so far this year.

For the world's poorest people, many of whom spend half or more of their income on food, rising grain prices can quickly become life threatening.

Once stimulated solely by government subsidies, biofuel production is now being driven largely by the runaway price of oil. Many food commodities, including corn, wheat, rice, soybeans, and sugar cane, can be converted into fuel; thus the food and energy economies are beginning to merge.

The market is setting the price for farm commodities at their oil-equivalent value. As the price of oil climbs, so will the price of food.

In some U.S. Cornbelt states, ethanol distilleries are taking over the corn supply. In Iowa, 25 ethanol plants are operating, four are under construction, and another 26 are planned.

Iowa State University economist Bob Wisner observes that if all those plants are built, distilleries would use the entire Iowa corn harvest. In South Dakota, ethanol distilleries are already claiming over half that state's crop.

The key to lessening demand for grain is to commercialize ethanol production from cellulosic materials such as switchgrass or poplar trees, a prospect that is at least five years away.

Malaysia, the leading exporter of palm oil, is emerging as the biofuel leader in Asia. But after approving 32 biodiesel refineries within the past 15 months, it recently suspended further licensing while it assesses the adequacy of its palm oil supplies. Fast-rising global demand for palm oil for both food and biodiesel purposes, coupled with rising domestic needs, has the government concerned that there will not be enough to go around.
Less costly alternatives

There are truly guilt-free alternatives to using food-based fuels. The equivalent of the 3% of U.S. automotive fuel supplies coming from ethanol could be achieved several times over - and at a fraction of the cost - by raising auto fuel-efficiency standards by 20%. (Unfortunately Detroit has resisted this, preferring to produce flex-fuel vehicles that will burn either gasoline or ethanol.)

Or what if we shifted to gas-electric hybrid plug-in cars over the next decade, powering short-distance driving, such as the daily commute or grocery shopping, with electricity?

By investing not in hundreds of wind farms, as we now are, but rather in thousands of them to feed cheap electricity into the grid, the U.S. could have cars running primarily on wind energy, and at the gasoline equivalent of less than $1 a gallon.

Clearly, solutions exist. The world desperately needs a strategy to deal with the emerging food-fuel battle. As the world's leading grain producer and exporter, as well as its largest producer of ethanol, the U.S. is in the driver's seat.

Premier Helps Officially Open Canada's Largest Ethanol Plant

SARNIA, ON, Aug. 31, 2006 (Canada NewsWire via COMTEX) -- New Suncor Facility Means More Jobs, Opportunities For Ontario Families

Ontario Premier Dalton McGuinty today helped officially open Suncor's new ethanol plant, which will help attract investment, create jobs and lead to a cleaner environment for Ontario families.

"The start of production at this world-class facility marks a major step forward for Ontario's emerging ethanol industry," said Premier McGuinty. "It will attract investment, create jobs and open up new markets for our farmers."

The St. Clair Ethanol Plant is the largest ethanol production facility in Canada with an expected production volume of 200 million litres per year. The plant has 38 full-time employees and is expected to use 20 million bushels of corn per year, creating ongoing opportunities for corn growers.

The plant has been supported by the signing of the Ethanol Manufacturer's Agreement between Ontario and Suncor. Designed to provide a stable environment for investment in ethanol, the agreement will provide the Suncor plant with a projected $36 million over the next three years.

The government is encouraging the construction of more ethanol plants in Ontario by investing up to $520 million in the 12-year Ontario Ethanol Growth Fund. The fund supports ethanol producers and independent retailers selling ethanol blends and promotes research and innovation.

The McGuinty government is also committed to reducing greenhouse gas emissions by increasing the use of ethanol in gasoline. In November 2004, the government announced a Renewable Fuels Standard, requiring an average of five per cent ethanol in all gasoline sold in Ontario by January 1, 2007.

"The growth of Ontario's ethanol industry is bringing exciting new opportunities to our rural communities," said Leona Dombrowsky, Minister of Agriculture, Food and Rural Affairs. "Our ethanol plan is part of our strategy to help farmers innovate, pursue new markets and stabilize their incomes so they can prosper."

"Suncor's new ethanol plant here in Sarnia is great news for families in this community," said Caroline Di Cocco, MPP for Sarnia-Lambton. "It will strengthen the local economy and bring unprecedented investment to the area."

Investing in alternative fuels is just one way the McGuinty government is working on the side of businesses and families to strengthen Ontario's economy.

Other initiatives include:

<<
- Encouraging strong job creation, with more than 283,000 net new jobs
since taking office
- Helping to generate almost $7 billion in automotive investments that
retain and create thousands of high-value jobs
- Launching a $500-million Advanced Manufacturing Investment Strategy
to help manufacturers develop cutting-edge technologies.
>>

"By supporting the production of ethanol in Ontario, we're helping to make Ontario a world leader in the bio-fuels industry," said Premier McGuinty. "We're going to continue working with our industry partners to ensure Ontario remains the best place to invest in the years to come."

Disponible en francais

<<
www.ontario.ca/premier
www.strongontario.ca
>>

SOURCE: Office of the Premier of Ontario

Global Realty Development Corp. To Acquire Unique Biofuels Company U.S. Sustainable Energy Corp.

CORAL SPRINGS, Fla., Aug 30, 2006 (PRIMEZONE via COMTEX) -- Global Realty Development Corp. (OTCBB:GRLY) today announced that it has executed a Memorandum of Understanding to acquire United States Sustainable Energy Corp. of Mississippi, "USSEC" subject to due diligence and certain events.

U.S. Sustainable Energy Corp. of Mississippi ("USSEC" or "the Company") comprises a family of patent and patent-pending technologies that focus on the development of Green alternative Biofuels energy from sustainable biomass sources, such as soybean and corn, and the conversion of waste into alternative energy or other usable products.

USSEC has signed an MOU with Cofitral Holding S.p.A. proposing a joint venture to license the technology for the European Union paying a license fee to USSEC for $1,000,000 in 30 days. Cofitral designs, implements and manages business in the environment, agriculture, energy, transportation and logistics sectors. The Joint Venture will be owned 85% by USSEC and 15% by Cofitral. John Rivera, Chairman of USSEC stated, "The Company's process yields in excess of five gallons of Biofuels from 60 pounds of beans or one bushel of raw soybean. It takes 8.5 minutes from bean to fuel. The yield of 5 gallons of Biofuels per bushel is approximately more than twice as great as the yield of Biodiesel from the same input. Variations of the Biofuels have been used to operate all engines including diesel generators, automobiles, trucks, railroads and jet airplanes. The Company can use many different biomass materials including corn, rapeseed, jatropha, palm oil, etc. to produce its Biofuels."

ABOUT USSEC

USSEC is an international producer of American Biofuels solutions through its proprietary and patent pending processes, Biofuels products and molecular structure of the Biofuels. From its testing plant in Mississippi, USSEC has produced various Biofuels which have been used to operate all engines including diesel generators, automobiles, trucks, railroads and jet airplanes. The Company can use many different biomass materials including corn, rapeseed, jatropha, palm oil, etc., to produce its Biofuels. USSEC can also utilize its Biofuels to co-generate electricity. USSEC is dedicated to building Biofuels facilities to produce Green Power. If USSEC produces Green Power in any state in the United States that have a Green Power program or any country signed as a member of the Kyoto Convention then USSEC will generate Green certificates known as "Green Tags". Green tags, also known as Renewable Energy Credits (RECs) or Tradable Renewable Certificates (TRCs), are a market mechanism that represent the environmental benefits associated generating electricity from renewable energy sources. Rather than functioning as a tax on pollution-causing electricity generators, as traditional carbon emissions trading programs do, green tags function as a non-governmental subsidy on pollution-free electricity generators.

In states which have a green tag program, a green energy provider, such as USSEC, is credited with one green tag for every 1000kWh of electricity it produces. A certifying agency gives each green tag a unique identification number to make sure it doesn't get double-counted. The green energy is then fed into the electrical grid (by mandate), and the accompanying green tag can then be sold on the open market.

Texas getting another ethanol plant

DALLAS, Aug 29, 2006 (UPI via COMTEX) -- Panda Ethanol Inc. will build a 100-million-gallon-per-year ethanol plant in Sherman County, Texas.

The facility will annually refine about 40 million bushels of corn and milo and generate the steam used in the process by gasifying more than 1 billion pounds of cattle manure a year, PEI said Tuesday.

The Sherman facility is the fourth 100-million-gallon ethanol project announced by Panda, and the third to be powered by cattle manure.

Panda's Sherman refinery will be located on a 1,200-acre site 3 miles northwest of Stratford, Texas. Construction will take about 18 months.

RUSSIA HARVESTED LESS CORN THAN LAST YEAR

ST.PETERSBURG, RUSSIA, Aug 28, 2006 (A&G News via COMTEX) -- By the beginning of August Russia harvested 18,3 million tones of corn, that is by 2,4 million tones less than in the same period of the last year. As far as Rosstat informed on Monday, the part of wheat was 14,2 million tones of all the volume of the corn gathered. According to the data of the Minister of Agriculture, the gross corn harvest this year will come to 70-73 million tones. The MEDT forecasts the harvest at the volume of 75 million tones. Last year Russia gathered 78,2 million tones of corn.

Vietnam Coffee-Heat and looting threaten crop quality

By Ho Binh Minh

HANOI, Aug 29 (Reuters) - The threat of looting posed by high coffee prices and sunny September weather may lead to poorer bean quality as Vietnamese coffee farmers start harvesting early to protect the crop and cash in, traders said on Tuesday.

They said the looters will be active in the key coffee-growing Central Highlands as long as prices in the world's top producer of robusta stay around 20,000 dong ($1.25) per kilogram, near a five-year high.

A kilogram of robusta beans eased to 20,600 dong ($1.29) on Tuesday from 21,500 dong on Aug. 23, which is the highest since global coffee prices crashed in 2001.

"Prices are so good now and if they remain above 20,000 dong, looting is inevitable," said a Ho Chi Minh City trader.

Another trader said it was common when prices were high for hired labourers to loot the same farm they worked for at night.

"The weather has been very good now and if sunny days come in September, the harvest could start early because some cherries are ripe," he said while en route to survey the crop.

Cherries ripened early as rains falling during the previous October-January harvest resulted in an early blossom.

The mid-October start of Vietnam's harvest follows the arrival of the -dry season. Growers said rainfall was good after a drought ended early last year.

But an early harvest that takes place while coffee cherries are green, coupled with hasty picking to avoid looting, will make it difficult to process coffee and raise the ratio of black beans. Unripened cherries tend to be disqualified during processing because the high moisture content in the cherries spoil the beans in them.

Black beans are regarded as defective and may affect the selling price.

LOSSES

Deputy Agriculture Minister Diep Kinh Tan told a coffee quality seminar last Thursday that harvesting unripened cherries could mean losses of 100,000 tonnes each crop.

Vietnamese industry officials said farmers were aware of the quality problem, but they often chose to harvest early rather than leave them unprotected on the farm.

About 80 percent of Vietnam's coffee is grown by 600,000 farmer families, making it difficult for the state to control crop production and ensure stable quality.

"It is the farmers' call and no power can interfere," the first trader told Reuters.

Vietnamese robusta, which is used to make instant coffee and which is priced lower than aromatic arabica, is sold at discounts to London futures contracts partly because of its lower quality.

On Tuesday, Vietnamese exporters, aware of a possible dearth of good quality beans in November due to numerous committed shipments, have reduced making offers. The London market's closure for a public holiday on Monday also contributed to Vietnam's slow trade.

But traders said robusta grade 2, 5 percent black and broken was recently quoted at $70 to $90 a tonne to the LIFFE November contract , or $1,400 free on board at Saigon Port . The quotation is on par with the export price on April 2, 1999.

Prices in Vietnam then fell gradually to $290 in early October 2001, when world prices plunged to 30-year lows.

The government has estimated coffee exports will rise 9.7 percent to 835,000 tonnes, or 13.9 million 60-kg bags, between October 2005 and August 2006, over the same period in the previous crop year.

($1=15,976 dong)

Brazil Coffee - Growers meet in bullish mood

By Peter Blackburn

RIO DE JANEIRO, Brazil, Aug 29 (Reuters) - Brazilian coffee producers, with more than 85 percent of an excellent crop harvested, were gathering in Belo Horizonte on Tuesday feeling bullish about the market outlook.

Nestor Osorio, executive director of the International Coffee Organization, will open the three-day meeting in the capital of Brazil's biggest coffee producing state against a backdrop of tight stocks and much smaller crop next year.

"We want to discuss the sector's future and to improve coffee policy planning," said Mauricio Miarelli, president of the producers National Coffee Council (CNC).

An exceptionally dry Brazilian winter fanned speculation that coffee trees, tired after a large harvest, would produce a poor flowering in September for next year's crop.

However, traders said that lack of autumnal rain in March and April and higher than normal winter temperatures were mainly responsible for stressing coffee trees.

Last Friday, the government as expected slightly revised up its estimate of the current harvest to 41.57 million 60-kg tags, a 26 percent increase on last year.

Light rain last weekend in coffee areas of Minas Gerais and other parts of the southeastern coffee belt dampened speculation about a poor September flowering and triggered a decline in New York Board of Trade (NYBOT) futures.

As a result, domestic physical trading was subdued.

"Producers are only selling enough coffee to settle their bills," said Santos-based broker Eduardo Carvalhaes.

HIGHER AUG SHIPMENTS

But despite a shortage of containers and disputes over shipping and handling charges, export registrations between Aug. 1 and 28 totaled 2.32 million bags, 41 percent higher than 1.65 million bags at the same time last month and up 13 percent from 2.06 million bags in August 2005.

Swedish quality arabicas for Sept/Dec shipment were unchanged at -20/-18 cents a 1b under New York futures.

"Even when it's quiet a lot of business gets done," Carvalhaes said.

A Rio de Janeiro based broker added, "It's stalemate. Producers are confident that prices will rise while buyers refuse to pay up because they believe there's a lot of selling to come."

Despite the harvest, good quality, hard cup arabicas were quoted at 245/250 reais per 60-kg bag, up 5 reais from last week.

Brazil govt revises up 2006/07 coffee crop 2.5 pet

By Andrea Welsh

BRASILIA, Brazil, Aug 25 (Reuters) - Brazil's 2006/07 (July/June) coffee crop is seen 2.5 percent higher at 41.57 million 60-kg bags, compared with 40.62 million bags estimated in April, the agriculture ministry said on Friday.

The world's biggest coffee grower and exporter will produce 26 percent more coffee than the 32.94 million bags in 2005/06.

In its third 2006/07 crop estimate, the government put arabica bean output at 32.06 million bags, up from 31.02 million bags seen in April, whilst robusta output was estimated at 9.51 million bags, against 9.60 million bags previously.

Brazil produced 23.82 million bags of arabicas and 9.13 million bags of robustas in 2005/06. "There's not much change in the general scenario (from the previous estimate)," Vilmondes Olegario da Silva, the ministry's director of coffee, told a news briefing.

Higher prices encouraged increased crop care, such as more fertilizer, pesticide and pruning, which resulted in a slight upwards revision of the crop. An upturn this year in arabica's biennial production cycle also boosted this year's crop.

Average yield was estimated at 19.43 bags per hectare, up 31 percent from last year, but the total productive area was 3.5 percent smaller at 2.14 million hectares, versus 2.22 million hectares in 2005/06.

Yields were excellent at 23 bags per hectare in south Minas and " the center-west of Minas Gerais state, which produce about 55 percent of the coffee in Brazil's No. 1 coffee state.

But yields were disappointing in forested coffee areas and in the robusta producing state of Rondonia.

An estimated 86 percent of Brazil's coffee crop will have been harvested by the end of August, Vilmondes said.

Looking ahead to next year's crop, he said that the winter had been extremely dry and trees were stressed.

"There's no reason to be alarmist, but we have already exceeded the level at which trees are vulnerable to drought," Vilmondes said.

He noted that the moisture deficit was now 220 millimeters (8.7 inches) and that trees are vulnerable at 150 mm.

"It's difficult to forecast...if it rains there could be recovery," he said.
Vilmondes forecast that Brazil would export 26 million bags of green and soluble coffee in 2006, after shipping 13.7 million bags between January and July.

He said stocks had declined since the end of March, when 9.7 million bags of coffee were stored privately and 2.6 million bags were held by the government's National Coffee Development Fund (Funcafe).

Traders and analysts expected a slight upward revision in the crop due to excellent harvesting conditions during an extremely dry Brazili an winter.

In June, the U.S. Department of Agriculture (USDA) put the Brazilian crop at 44.8 million bags -- the top end of trade guesstimates ranging from 42 million to 45 million bags.

London coffee sets 7-yr peak on stock suspension

London coffee sets 7-yr peak on stock suspension

By Eleanor Wason

LONDON, Aug 22 (Reuters) - World robusta coffee futures closed up on Tuesday but off a fresh seven-year high hit on the back of news on damage to stocks in Italy just as supplies from top producer Vietnam start to run out.

Dealers said weakness in New York pulled the market off the day's peak.

The benchmark November contract closed up $35, or 2.3 percent, to settle at $1,570 after trading between $1,586 and $1,535. Total volume was a strong 23,562 lots.

"We thought New York would be supported by London. It didn't happen and then London came down because of New York," one dealer said.

September coffee settled up over 7 percent at $1,745, the top price for a nearby contract since January 2000. Its premium over November rose to as much as $175.

Euronext.liffe said late on Monday it suspended 3,098 five-tonne lots of coffee stored in the port of Trieste, potentially cutting the amount of robusta available to be delivered against the exchange's futures contracts by as much as 16 percent.

"The catalyst was the announcement by the exchange. It has fanned the -fire and coincides with problems we had already with the drawdown of stocks," a trader said.

Inventories certified by Euronext.liffe stood at 19,428 lots as of mid-August, already the lowest in six years.

Robusta is largely used to make soluble coffee and is already in short supply after a drought-induced drop in Vietnamese production in the 2005/06 season. The better-quality arabica variety trades in New York and mainly grows in Brazil.

Euronext.liffe suspended the coffee because of moisture damage. It had already reduced Trieste's stocks to 3,796 lots after withdrawing 2,021 lots for the same reason earlier this month. The port held the second largest pile of certified coffee after Antwerp, home to two-thirds of the exchange's supply.

VIETNAM HARVEST

Robusta has risen about 32 percent since the start of the year amid fears about Vietnamese production, which accounts for almost a third of world robusta supply, as well as a surge of interest from investment funds.

Traders and analysts declined to predict how much further prices could rise.

"Whenever you get into a situation driven by short-term supply problems, pricing the top of the market is a dangerous business," said Fortis analyst Jonathan Parkman.

Market players agreed prices are likely to remain volatile for the next few months until Vietnam starts to harvest its 2006/07 crop.

The pricing of contracts reflected these concerns with coffee to be delivered in September, November and January all commanding a premium.

Normally, in a well-supplied market contracts further forward are more expensive.

Traders in Germany, Europe's biggest coffee market, said the Trieste stock problems contributed to a virtual standstill in physical robusta trade.

"It came as a rather a surprise," one said. "You do not expect damage on this sort of scale in modern warehousing operations and people are waiting for more information."

Dealers said it was important to find out how much of the coffee would be a total loss and how much could be re-certified.

Longer-term, analysts are divided on the effect higher prices will have on production. Fortis's Parkman said farmers, particularly in Vietnam, are likely to be encouraged to expand output.

German analyst F.O. Licht said in a report last week though that there were few signs of significant expansion.

Producers are likely to be wary of overexpanding after a surge in output, mainly by Vietnam, sent robusta tumbling to 30-year lows of under $400 a tonne in 2001.

Outlook for Frozen Orange Juice Remains Bullish for Long Term

Outlook for Frozen Orange Juice Remains Bullish for Long Term

By James Cordier and Michael Gross
19 Aug 2006 at 07:50 AM EDT

TAMPA, Fla. (Liberty Trading Group) -- While major news events can often cause immediate knee-jerk reactions in the markets, the longer term fallout of such events is often not known for months, or even years. The series of devastating hurricanes that struck the U.S. Gulf coast over the last two years are examples of how prices of certain commodities such as oil, natural gas, cotton, soybeans and even sugar can be affected in the immediate aftermath of such an occurrence. With the possible exception of natural gas, these commodities have long since recovered, replaced or repaired any storm related supply losses or damage to production or shipping facilities.

There is, however, one glaring exception. In the hurricanes of 2004 and 2005, there was one market that had its infrastructure damaged so severely that its impact will be felt for years to come. The market to which we are referring is frozen concentrate orange juice (FCOJ).

When storms with names such as Charlie and Francis roared through Florida’s growing regions in 2004, the FCOJ market, like many other commodities markets, immediately began pricing the damage to the current supply. When a second round of storms battered central Florida the following year, the market again raced to new highs to account for orange production loss to the 2005 crop. What was not immediately known was the longer term damage done to Florida orange trees and its impact on future production.

What was not known then is now becoming clear. Florida groves suffered substantial long term damage, having lost thousands of trees. And the Florida orange industry is in no immediate hurry to replace them. This fact is clearly evident in the production estimates for the upcoming 2006/2007 crop.

But before we discuss current production, one must first understand what type of production occurred before the storms took place. In the five years prior to the summer of 2004, Florida produced an average of 226.2 million boxes of oranges per year (1999-2003). The storm in 2004 damaged crop produced only 149.6 million boxes of oranges; 2005 faired only moderately better, producing 151 million boxes of oranges. This means that for two years running, Florida groves have produced roughly 34% less oranges than their previous 5-year average. This shortfall in supply has resulted in one of the most sustained bull markets in all of commodities over the last two years. On Thursday of this week, FCOJ prices at the New York Board of Trade hit a new 16 year high, topping out at over $1.87 per pound.

Those that thought the bull market was nearing completion and that 2006 would bring more “normal” production back to Florida may want to check again. Largely due to the loss of trees, commercial firm Louis Dreyfus pegged the 2006/2007 crop at only 160 million boxes. This estimate does not, of course, take into account any possible storms that could affect Florida this hurricane season. Another private analyst, Elizabeth Steger, has the crop pegged at a stunning 123 million boxes.

Liberty Trading’s estimate is closer to Dreyfus at 145 million boxes for 2006/2007 production. We believe Florida growers will probably grow close to 160 million boxes of oranges. However, what many in the trade fail to consider is that many groves in the most heavily damaged regions will only yield 30%-50% of their pre-storm production. At these low yields, the cost of harvesting the oranges becomes less than the revenues they would produce. In other words, it is more cost efficient for growers to forego harvesting. We project that this “lost” production will reduce the 2006 crop an additional 10-15 million boxes of oranges.

The fact that growers have been slow to replant trees does not bode well for future orange production. With Florida’s bulging population, land hungry developers are making some attractive offers to Florida growers and many are accepting. With production down and land prices skyrocketing, many growers figure this is a good time to sell. However their gain is the market’s loss and the FCOJ contract will have to rely more heavily than ever on Brazilian oranges to fill the void. However, not only can Brazil not cover the entire shortfall, their oranges are more expensive to ship (they must be imported into the U.S.), and they are harvested at a different time of year.

If October’s USDA estimate is anywhere near Dreyfus’s estimate of 160 million boxes, we think $2.00 OJ is fundamentally justified. Another storm blowing through central Florida before then could probably drive prices near the $2.20 range.

Many traders talk of trading with the trend but few find it easy to do so, instead seeking fast and sizable rewards by trying to pick tops and bottoms. We advise against this. As we state repeatedly in our book and our columns, selling options in favor of the trend is one of the highest probability trades an investor can execute. Though currently a bit overbought, the uptrend in juice is solidly entrenched and has a sound fundamental justification.

At the very least, it is our opinion that it will be difficult for FCOJ to reverse trend and head substantially lower facing the third strait year of anemic production and heading into the heart of hurricane season. For this reason, we think a correction next week will provide opportunities to sell put premium below the market.

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