Commentary for May 8th

New York Coffee futures closed 520 points lower

 

New York Coffee futures closed 520 points lower basis July at 195.80 cents per pound. The market took a bearish turn after the release of several reports indicating that the situation in Brazil may not be as bad as once thought. Somar released their report indicating that the “El niño” phenomenon would reduce the likelihood of possible freezes and would also alleviate the drought situation in Brazil. News of substantial carryover stocks from the 2012/13 crop also helped push the market lower with reports stating numbers as high as 12.5 million bags. Comexim also published higher current crop yields estimating a 2014/15 Brazil crop sized at about 48 million bags, contradicting previous estimates of 8-10 million bag losses. In Macroeconomic news, The Dollar strengthened following the European Central Bank’s announcement of a possible lowering of interest rates.

Technically speaking, the market seems to have lost some of its steam and broke the important 200 support level. Open interest has increased 664 lot to a total of 158,963 lots. In the short term, the July chart shows support between 194 and 189 and resistance between 200 and 207. Tomorrow June options expire

 

London record 230 lots issued against May with one clearer making up a major part of both sides with most of the coffee being Vietnam. The working exposure in the spot month was reduced by 254 lots as a result taking the working position to 980 lots starting today. 338 lots were graded today which suggests that we have generated some traction in grading this week. The numbers of coffee arriving and parcels available to the market still appear not to calculate indicating that the offtake into industry has remained very good in the opening four months of the year even better than was originally forecast. Some of the European stock numbers which have been circulating suggest not much change in the overall position between end of February into March, but it is the April figures which will be more important.

Prices held a tight range into the afternoon with the configuration of London following the same pattern with sorting of July spec longs created nearby pressure widening the structure and encouraging rolling of hedge shorts. Light origin selling remained in place near to the price action and price fix buying materialized on a scale which explained the tight operating range.