Commentary for Friday Jan 10th

ICE Coffee Futures Settle Higher on Fund Buying

Arabica coffee futures recovered Friday helped by the index fund buying. The active contract for March delivery gained 140 points to close at 120.75 cents a pound.  The activity was moderate with the volume reaching 23,452 lots, including 5,049 switches.  The active switch March/May was weak, ending at   -2.20 cents, after trading between – 2.15 and -2.25 cents.  The index fund buying could be evident on the TAS transactions.  The re-balancing of the index fund will end on January 15th.  In Brazil, the real ended higher against the US dollar following a disappointed non-farm employment data in the US.  The data showed that only 74,000 jobs were added during December against 200,000 economists were expecting.  The real ended at BRL2.3648 from BRL2.3964 previous close.  During the week, coffee prices advanced 4.30 cents or 3.6%.  New forecasts of the size of the 2014 Brazilian crop rose concern amid participants.    

Once more Robusta cope with opening weakness as prices held the base line of 1700 into the morning session. Turnover maintained an acceptable pace as traders prepared for another move higher into the second part of the week for a strong end of week settlement. Origin continued to provide sporadic involvement but a combination of spec longs and arbitrage related buying ensured a solid base from which levels worked higher.

The London stock report recorded another decrease of 182 lots which was in line with the expectations taking the position down to 2,820 lots another record low. No grading and just 96 deliveries against the January encourage the backwardation to widen and generate concern moving forward.

Quality selling is the absence in London with the level of spec longs small allowing plenty of scope to expand. Current estimates suggested towards 13,000 long from the “Managed Money” sector with the” Other Reportable” short down to 1,200 which if the case explains the consistent buying Robusta has recorded this week.  

Arbitrage differentials narrowed into the afternoon as Robusta started to pull in end of week buying taking levels towards highs of the week targeting the 1750 option strike.