Commentary for Aug.19th

ICE Coffee Futures ease ahead of First Notice Day

December Coffee futures closed 695 points lower today motivated by speculative liquidation in light of uncertainty concerning the Brazilian crop. At this point traders are assuming that much of the damage to current crop has already been factored into the market price. The consensus is that the market’s next move will be motivated by perceptions regarding flowering and short-term weather forecasts. The latest weather reports show rains returning after August 25th which should improve conditions for next year’s crop. The switch underwent a relatively volatile session with Sep/Dec trading at a low of -4.25 and a high of -3.70, closing at -3.95. First notice day for September is this coming Thursday.

Today’s downward move was in part motivated by economic data published by the US Commerce Department which reported that housing starts climbed nearly 16% in July to an annual rate of 1.093 million units, the highest level since November. Many commodity groups eased as a result including softs, grains and metals.   The strengthened of the US dollar contributed to add pressure on the prices.  The dollar rose to the highest level versus the euro in nine months, as traders anticipate the FED will raise interest rates next year due to faster economic growth following the housing data. In Brazil, the real advanced 0.1 percent to BRL 2.2551, helped by a decline of the wholesale prices.

London - The market was discussing the structure into the session after the discount had narrowed into the close yesterday. Underlying bids set the board off in the same direction as positions were addressed ahead of the September option expiry tomorrow. September/November structure traded into $4 discount before finding its level around $6 into the session. Changes in the exposure after yesterday’s action was interesting with the September open book down almost 3,800 lots still leaving over 28,900 lots open. The bulk of the exposure moved into November which increased by 2,168 lots. Overall open position for Robusta still reflects liquidation down another 1,000 lots to 95,097, which is the lowest open position carried since late July.

With New York prices rolling over London was encouraged to probe lower but still operating into a relative tight range as New York tested important longer term averages on the downside. Robusta tested the lower end of the recent range activating liquidation but uncovered a phase of price fix buying which was enough to hold the market into the close