Commentary --July 23--FC Stone

ICE Coffee Futures Rally sharply on Bullish Fundamental News

 

ICE Coffee futures rallied sharply throughout today’s session motivated by bullish fundamental news and short covering. FCStone do Brazil published a report which suggested yield declines of up to 25% throughout many of the Brazilian coffee producing regions. The report also inferred that next year’s crop (2015/2016) was likely to be affected, given that some plantations which have received rain are already flowering. This is of particular concern to producers since we are now entering a period of drought which is normal at this time of year.

 

Throughout the morning session the market was particularly quiet, however the report generated some buying interest which in turn forced many speculative shorts to cover their positions. On the way up several stops were hit especially around the 173-175 area basis September which further pushed the market higher to test the 180 area. Volume was higher than past sessions at 20,896 lots traded. The September contract shows technical resistance around the 178 area and support at 167.00.              

 

London - Reports indicate physical differentials in Vietnam have been weakening over the last few days. Local comments suggest more willing sellers but the fact remain buyers have also backed away. Volume was better in London as the market probed lower with weakness enough to activate stops below the 1980 area and attracted a mixture of what appeared liquidation type selling. Switches put together better numbers in the weakness with the September premium back to level money. Limited change in the spot month exposure continues to attracted attention with only 5 trading sessions remaining before the position expires next Thursday. Balance open position coming into this morning was 2114 lots down only 3 contracts. The rate of grading although consistent is relatively slow with only 19 lots coming forward this morning.

Export numbers out of Vietnam were reported around 108,000 tonnes and although the monthly performance has slowed we are still around 12% higher on the season with local stocks at high levels.

Prices recovered on the back of New York’s rally edging back above the 1980 pivot in September as the market trapped shorts. Improved structure activity generated better turnover on the day. Arbitrage widening produced selling into Robusta as the premium traded back above 83 cents putting pressure on shorts.