Coffee Commentary September 16, 2014

ICE Coffee Futures Fall on Brazil Weather

Arabica coffee futures fell Monday on speculative liquidation caused by forecast of rains for the main growing areas of Brazil.  The active contract for December delivery settled 235 points lower a t 182.20 cents a pound.  Activity was moderate with volume reaching 14,992 lots, including 3,447 switches.   The nearby December-March spread widened 5 points to end at -4.10 cent.   SOMAR is forecasting now the arrival  of two fronts that  will bring substantial rains to the main growing regions from Parana  to the center  and south of Minas Gerais. CONAB will issue a review of the current crop tomorrow.  In related news, Peru (Agricultural Ministry)  cut its outlook for coffee production to 3.22 million 60 kilo bags or about 30 % less than last year. 

London - Slow start to the week in London with the market testing below the 1980 area which did not activate the round of stops expected. Prices quickly rebounded but struggled to work back towards Friday’s settlement. We came across little origin evidence with local activity very quiet as differentials have strengthened after the move lower on futures. Grading in September has been progressing with some 957 lots evaluated as of Friday night with a 90% pass rate. Stock which was delivered in July appear still to be lying in warehouses without movement and the sorting out of the September is almost complete with only 130 lots open coming into today’s session. No tenders today with the cumulative total standing at 660 originals of which 174 have been re-tendered during the month to date.

London COT report attracted more hedge selling as the market was down $44 over the week taking the net short to 32,414 in the Processor sector which an increase of 4,291 lots. This could suggest “belated hedge” type selling. The Managed Money players actually added to the long book taking the net position to 31,028 despite the weakness in the market which was a surprise.

Levels operated into a very tight range into the second part of the session not able to rally away from the 1980 pivot area which is important this week.