Arabica coffee futures dropped Wednesday on commercial and speculative selling. The
most active contract for September delivery fell 170 points to close at 118.60 cents a pound. A weak real induced producers selling early on the session. However after the coffee market close, the Brazilian currency
recovered sharply following the FED statement stating an outlook for the US economy less positive. Coffee prices were also pressured as the technical picture deteriorated. The breaking of the key level of 120 for the
September contract attracted speculative participants that now anticipate further losses. During the month, Arabica prices declined 140 points. Concerns about the cold weather in Brazil propelled the prices
against the 132.50 resistance level, helping producers especially from Brazil to hedge futures sales. Exhaustion amid long players added weight to the liquidation that followed. In coffee related news, Mexico
2013-14 total output may drop as 10 %, according with Gabriela Barrera, from the AMECAFE.
Activity was better during the early stages as prices probed lower searching for more stops. Structure uncovered good support at level money absorbing the continued rolling from the Index associated longs which have been so well published in London this year. The question of spec net exposure continues to be debated but
it is unlikely to be above 5,000 short which as a result is considered not to be influential to price action. This still leaves some decent gross numbers to be sorted as the attention switches to September which takes over the spot position today.
Technical considerations have taken on a different configuration this week as prices have broken down but for the moment the action has not attracted fresh positions. Origin has been left behind with the recent move lower but still has good volumes that need to be sorted out over the next month.
Levels worked lower encouraged by the weakness in New York with the structure finding its level as hedge shorts came to the market and widened the premium. Underlying bids became a significant influence to the direction of the premium.
Good volume traded out into the settlement with towards 1,900 lots of Sept/ Nov coming together into the closing sequence as the premium held once again. The outright market ended towards unchanged on the day maintaining the negative slant which has developed the last few days.
Commentary by: Int'l FC Stone
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