Coffee commentary for Aug.28

ICE Coffee Futures Edge Higher

Arabica coffee prices consolidated higher in a technically inside day (trading range within the confines of the previous day’s activity).  Spot futures for December delivery finished 1.85 cents higher at 200.00 per pound in the highest close since May 15th basis Dec.  Market players remain focused on weather forecasts ahead of the long Holiday weekend in the US, as only scattered showers are expected in the central growing region of Minas Gerais for the duration of the month of August.  The extent of the “drought” season in Brazil coffee zones, is an important barometer for the size and health of the 2015/2016 harvest in the world’s largest grower.  Ample rains prior to September 15th are constructive, while any delays beyond this threshold and extending into October would be counterproductive to yields.  Technically, coffee volatility has been expanding this week given the wide trading range and uncertainty surrounding the global supply/demand balance moving forward.  Support and resistance are now at 182.85 and 202.70 followed by 211.10, respectively.

London - Volume was light as the Robusta market worked lower into the morning with more evidence of origin selling circulating the market which encouraged a wave of intraday selling. The September structure remains the centre of activity with the discount narrowing trading back to a dollar premium before pulling back to $10 discount and then narrowing into the close. The influence of the origin tended to create a ceiling of selling rather than drive the weakness. Information flow from Vietnam has been limited this week over shadowed by the weather reports out of Brazil. Physical differentials have yielded little change with local stock levels high for this time of the season. Local prices in Indonesia hold firm this week with arrivals low and most conversations continuing to revolve around the possible new 10% tax which the market has been discussing this month.

Grading for the board has slowed right down this week but the market still expects decent arrivals but that also has not materialised as we approach month end. The big swing in the Robusta exposure can be linked to the large Jan/Sept 2015 switch business yesterday showing a new position. London open position has now broken back above 105,000 lots an increase of 8,789 which is the biggest daily increase this year!  

Arbitrage buying provided a big contribution to the support in London today with the differential holding around 105 cents. Technically the market shows a promising upside swing this week establishing a base back above 2000 for the month end tomorrow!