On Monday, Arabica Coffee futures continued their three-day rally closing 290 points higher at 134.50 cents per pound for the December-delivery contract after reaching a high of 137.60, the highest since August 20th. Continued weather concerns in Colombian and Brazilian coffee regions continued to fuel the upside movement. Hot and dry weather is forecasted for the next few days, with little showers over the coffee regions of Parana. Friday’s open interest figures confirmed further short covering decreasing by 1,518 lots to a total of 185,766. Since the upside movement began in September 23rd, open interest has decreased by 8,620 lots. The Brazilian real and the Colombian peso markets were closed today and although today is a holiday in several Latin American countries and the United States, volume backed today’s strong move by reaching 31,835 lots, including 7,314 switches.
The market is focused on rains for the coffee region for this week, followed by the development of volatile emerging market currencies.
London Market- Robusta made hard work of the lead provided by New York with scattered origin interest responding in the nearby positions with the structure generating the bulk of the morning turnover. The spot month discount still operated in a tight range with the flat price selling widening the arbitrage back to the highs of the range above 62 cents. This has tended to be the upper brackets of the premium this year so far. Physical differentials show little movement holding good premiums with the market looking to the industry for their next move as coverage runs down.
Much of the conversations revolve around if we are to experience rains in Brail this week with the principle drive remaining the currencies and the macro picture which looks strong into the important last quarter of the year.
Into the Rally of the market the London COT report reflected the Merchant long releasing paper down 3,096 lots to a net position of 26,343 with the SWAP short increasing the position by 1,580 to 16,283. Managed Money shorts covered only 1,248 lots taking the working net position down to 10,825 with many traders expecting a bigger swing from this area.
A combination of arbitrage and origin selling kept London in line as the arbitrage pushed wider into the afternoon and the spot month discount edged wider back to $14 discount.
Initial margins will be lower effective close of business this Thursday 15th October. Coffee goes from $1,190 down to $940 per lot.