Saturday Night Live's Roseanne Rosannadanna used to dismiss life's unanticipated foibles by saying: "It's always something."

That's pretty much what I was thinking when I was asked about coffee this weekend. "You were bullish on coffee," went the question, "but not much has happened. What's going on?"

You may recall we painted a bullish scenario for coffee in a November article titled "Venti-Sized Gains For Coffee" when we set sights on a six-month target of $1.20 - $1.50 a pound, on the way to an ultimate objective of $2.50.

ICE/NYBOT Coffee (March 2009)

The nearby contracts may be changing hands at pretty much the same level as in November, but don't let coffee's year-end sluggishness lead you to believe there's nothing going on. Stagnation, says the International Coffee Organization (ICO) "is linked more to movements in the exchange rates of the U.S. dollar than to market fundamentals."

Fundamentals, in fact, are lining up for a bull move. More importantly, active traders are starting to believe in coffee's upside.

In November, we noted tectonic shifting in commercial coffee positions. In the span of nine months, the short position held by hedgers evaporated, indicating a growing expectation of higher prices. That's a pretty bullish sign.

Short Hedge Interest Waning

No market, however, turns bullish without speculative buying. Last year's institutional and hedge fund liquidation seems to have run its course. Now fresh buying is driving coffee open interest higher (see chart below).

Large Speculators Finally Growing Bullish

In particular, a recent report from the Brazilian agricultural agency Conab seems to have attracted speculative interest. Brazil is the world's largest coffee producer, so a production estimate showing output 16% to 20% below current levels is bound to be an attention-getter.

In the best of circumstances, the forecasted 37-39 million bag (a bag is 60 kilos, or 132 pounds) crop would fall five to 10 million bags short of the demand for Brazilian coffee. Weather and pestilence could further reduce production.

Scarcity, in fact, is developing in other growing areas, most noticeably Colombia, the world's third-largest exporter. According to the ICO, Latin American producers, hit by heavy rains, could have their output reduced by some 300,000 to 500,000 bags from previous estimates.

On the consumption side, ICO sees no pullback from this decade's 2.5% annual growth in coffee demand. There's no evidence of the global financial crisis affecting the world's thirst for java.

All told, then, we seem to be perking along to meet the objective set in November. After all, we're not quite three months into our six-month forecast, so our bull move is only half-brewed.