By NS Futures

The market seems to have the fundamentals to move higher over the near term, except for the selling trend by fund traders and a more negative tone from outside markets. Cash basis levels were said have improved for Brazil, Colombia and for Vietnam last week, as the available supply of free-market coffee appeared to be tightening everywhere but Vietnam, where harvest is increasing the supply. Colombia premiums remain historically high, after the small crop last year and the threat of broca worms causing irreversible damage to the crop this year. Traders still see the crop recovering from last year, but this is more uncertain of late. After the close last Friday, Brazil's government supply agency pegged the Brazilian 2010/11 crop at just 44.03 million bags. This is up from 39 million bags last year but below previous expectations. For the most part, private traders view the Brazilian crop as really being about 4-5 million bags above the official estimates, so we could be looking at a crop of 48-49 million bags compared with previous trade estimates of 50-55 million for next year's crop. The new estimate is likely to be considered supportive. March coffee closed 130 lower on the session last Friday but up still managed to rally 155 points on the week. A rally in the US dollar for the second day in a row last Friday sparked more long liquidation selling and another lower close, but a decline in the dollar overnight is lending support to coffee this morning. Continued talk of a lack of issues during the flowering season in Brazil for next year's crop has helped to increase concerns that the market may need to absorb a much larger crop next year. However, the new Brazil estimate is likely to provide solid support to the market this week. The firm tone to the cash markets in Colombia and others along with expectations that near 3 million bags of Brazil coffee will end up in government storage may have helped to provide some underlying support.