Coffee Commentary for Jan.20th

ICE Coffee Futures Fall on Weather Forecast


Arabica futures fell sharply on Tuesday as news indicates the main growing regions in Brazil may get beneficial rains in the next days. The active contract for March delivery lost 670 points to end at 164.30 cents a pound. Volume reached 34,756 lots, including 8,402 switches. Besides the SOMAR forecast, forecasting better rains reaching the state of Sao Paulo, Minas Gerais and northern Parana at the end of the week, other weather services said that the Brazilian main growing areas will receive favorable rains by the end of January and first days of February. Activity today was dominated by short term specs playing the short side, while industry appeared to stay on the side. In related news, the real in Brazil gained 1.5 percent to BRL2.6131 after announcement of tax increases improved sentiment the government will take measures to avoid problems with the credit rating.
London Market - London’s $43 range is a testament to the erratic nature of a weather market. Activity today revolved around New York’s sharp downward momentum driven by speculative liquidation following forecasts for good rain in Brazil for the month of February, and the triggering of sell stops in the 1950 area basis H15. Despite today’s sharp decline, industry was not particularly active with Vietnamese producers looking for price spikes to fix ahead of the Tet celebrations.
Options were relatively active today with better volume in July expiry suggesting participants could be looking to trade vol long term with 150 of the 2000 and 2050 straddles trading. Generally volume has been better in close-to-the-money calls in the front months suggesting traders could still be concerned about price spikes in the short-term.
Grading in London remained relatively active with 75 lots of Connilon graded today.