Arabica coffee futures dropped Monday on forecast of heavy rains over the main producing areas until Oct 10. The most active contract for December delivery settled 400 points lower at 147.55 cents a pound. Volume reached 26,042 lots, including 3,440 switches. According with SOMAR, rains fell in Espiritu Santo, Minas and Mogiana, and a low pressure system will cause rainfall to remain for the next 5 to 7 days. Last Friday COT showing non-commercial holding a larger than expected net long position added the bearish sentiment.
London Market- The Robusta market finally drives away for the Nov $2000 strike to fill the downside gap of 26th/27th September resting between $1978 and $1982 basis Nov16.Values opened $4 higher responding to the late move in the Arabica market, however, the spec community immediately responded to the strength by selling through $2000. Despite a solid response from the Roaster sector values continue to grind lower to trigger stops below $1989, helped by weakness in the structural market. The Nov16/Jan17 spread weakened to $27 discount on over 4,500 lots as values moved into the buying ideas of the short commercial, looking to move exposure down the board.
The latest COT report release versus the disaggregated futures and option category, showed the commercials reduced net shorts to 43,763 down 2,000 lots (with the gross long increasing by 5k reflecting roaster buying). Funds reduced longs by 2k to 35,009 lots. Most participants took a more negative approached to this release, claiming the recent response through the roasting sector would reduce a layer of price sensitivity should coffee push higher. Technically the Robusta market is showing downside potential with a downside cross note in the slow stochastics, whilst in overbought territory. However, technicians will be looking for confirmation in the form of a settlement below $1958, before fully committing to the downside.