Coffee commentary for Aug.26

ICE Coffee Futures Soar on Fundamental News

Arabica coffee futures soared Tuesday as  fundamental news prompted again concerns regarding the development of the 2015-16 Brazilian crop.  The most active contract for December delivery  settled 9.80 cents higher at 197.45 cents  a pound.  Speculative short covering   was encouraged following Bloomberg report projecting that  Brazil production is set for the  longest decline since 1965. Production in Brazil may fall 18% to 41.0 million bags this year, CONAB estimates.  In the report, Bloomberg after quoting  several sources, portrayed  a very tight  supply/demand  balance for 2015, sustained by the worst drought in decades suffered recently , that could cause a  global deficit of  10.0 million to 11.3 million bags  for the next season according to the ICO and private estimates.  A general recovery of the commodity complex added constructive sentiment to the coffee market.  

London - Good morning volume in London with the September structure a big part of the flow as the discount widened back towards $20. The focus to address the spot month intensifies with only 4 trading sessions remaining and the opening position starting today’s session was still over 20,000 lots open. Exposure was down 2,500 after the action Friday as liquidation drives the market.  Origin interest materialised scale from the 2000 marker into the session but the move attracted another phase of intraday longs working from the lead provided by New York as more background talk of sustained dry weather circulated.

Levels broke back above the more important averages which sparked a combination of short covering and fresh longs taking prices to levels last traded at the start of the month. Arbitrage values rallied in line with New York as the premium traded towards 104 cents in poor volume pulling Robusta higher. Price action consolidated well into the 2000 zone as the market tested the more important upside indicators but not convincingly breaking them needing more follow-though in New York.