Coffee Futures Regain Yesterday's Big Losses by FC Stone

Arabica coffee futures for September delivery regained most of the losses from yesterday’s drop, with a lot of
speculative  action  ahead  of  September  options  expiration  tomorrow  and  first  notice  day  next  week.  The
September contract opened 5 points higher than yesterday’s settlement and from there it just went higher to
finally settled at 137.05 cents per pound, up 520 points. Once again the volume was greater than the usual daily
average with a total of 78,232 lots traded, including 29,413 switches. This kind of volatility is always expected
the day prior to options expiration, and with the U 135 calls having the most open interest across the board, the
action today was probably influenced by the long side of those 135 calls wanting to have their options expiring
in the money. In related news the Colombian Coffee Federation announced that the year between August 2014
and July 2015 Colombia reached a total production of 13.1 million bags, 12.1% higher than the previous year.
On  the  other  hand,  Intelligent  Coffee  Insights,  a  recently  established  research  firm  co-founded  by  a  former
Starbucks executive, has cut its estimate for top producer Brazil's 2015/16 coffee crop from 48 to 46.1 million
bags, which also provided upside support to the market.  
 
London Market- The pace in the market slowed down into the session today but the components were the
same. Switches made up the turnover with the Sept discount holding a range between $11 and $17 discount
with the flat price action working to find its level after the sharp selloff last night. There was evidence of origin
interest above the board but little action around market values with no change from the origin position as the
price action moves away from local prices.  
During  this  month  the  board  has  only  approved  4  lots  of  grading  with  the  market  still  uncertain  as  to
possibilities of coffee being decertified when we received the updated numbers next week. September options
will expire next Wednesday with the market at these values favouring Puts. Reflecting on the open position
movements after the sharp downside reaction yesterday the board gave the appearance it was starting to pull
in shorts. The spot month exposure works lower and is likely to cross below November before the end of the
week.     
Prices took advantage of the New York rally getting above the 1720 area in November breaking the market back
above the averages and engaging the upside path catching the intraday shorts of yesterday.