Coffee commentary for Aug.15th

ICE Coffee Futures Close 465 Higher

 

Arabica coffee futures had a positive close today helped by news of adverse weather conditions in Central America.  The nearby contract for September delivery closed 465 points higher at 188.75 cents a pound.  Activity was moderate with a volume of 21,432 lots including 6,841 switches. The nearby switch widened  15 points to close at -4.40 cents.  According to MDA Weather Services,  rains in the past two months were 10% to 30%  lower than normal in Central America producing regions. Forecasts for the next 6 to 10 days indicate the possibility of light rains which would not do enough to ease the situation.    The strengthening of the real  discouraged local selling in Brazil.  The real closed at BRL 2.2645 from BRL2.2722 it settled yesterday.  After the close,  another  Brazilian  coop  announced   their outlook for reduced harvests  due to the drought.  Cocatrel expects to harvest 900,000 bags during 2014, down 40% from 1.5 million in 2013 and 15 to 20% lower for the 2015.  Cocatrel is located in Tres Pontas, south of Minas Gerais.  During the week, Arabica prices recovered 7.90 cents per pound or 4.36%. The activity was dominated by spread trading ahead of first notice day for September on August 21st.

US July green coffee stocks increased 386,860 bags to 6.043 million bags compared to the same period the year before.

London - There was little change in the trading pattern for Robusta with the sorting out of the September exposure generating a decent part of morning turnover. The switch discount recorded little change around $12 with a few clips of business lifting volume into the session. Light selling followed weakness but the outright volume was thin. Influence of option exposure becomes more important before the September positions expire next Wednesday. The 1950/1900 strikes carry over 6,500 puts. Interesting with the physical market so slow that despite the volatility in the Futures differentials had recorded little change in the last 2 weeks with the standard grade discounts around $40.

The open position in September finally slipped below November which suggested a change in focus into next week. Overall exposure was actually higher for the first time this week. Prices broke down some of the longer term averages putting pressure on the managed money longs which have just moved exposure out of the September with closer working stops. Price lifted well into the close trapping intraday positions as the board settled around session’s highs but not enough to reverse the downside break of this week.