FC Stone Commentary for April 22

ICE Coffee Futures Soar to New Highs

 

Arabica coffee futures soared to new highs on a new reduced Brazil crop forecast.  The active contract for July delivery settled 1420 points higher at 213.40 cents a pound.  Volume reached 28,166 lots, including 4,731 switches.  The new estimate for the 2014 crop came from VOLCAFE early on the session.  They expect Brazil to produce 45.5 million 60 kilo bags, down 11 % from their December estimate.  The Arabica crop is lowered to 28.4 million from 34.6 million and the Conillon is raised to 17.1 from 16.1 million.  Industry buying and speculative short covering propelled the prices that reached the highest price since February 2012.  Concerns about the real damage of the coffee crop in Brazil continued to encourage the bullish sentiment, and despite analysts have suggested that it is too early to have a clear scenario of damages and the size of the crop, a consensus amid traders, appears growing   around the lows 40.0s.  In other news, according with the Australian government forecaster, El Nino will probably start as soon as July.  The study shows six of seven models suggesting the event will begin in July as temperatures have started to rise.  Technically, the July chart shows the market breaking the recent resistance at 210.00. A confirmation of this action could drive prices to new highs.  Open interest continued to decline evidencing the significant short covering.  The OI has decreased 19,143 lots to 151,143 lots, since April 2, as prices gained 43.00 cents during the same period. 

 

London - More conversation surrounded the updated certified stock report which recorded a reduction of 447 lots taking the overall position down to 1,386 lots. This is the lowest working position since the change of contract size back in February 2009. The market continues to wait for the arrival of coffee shipped in March from Vietnam but for the moment there is no evidence of any build in stock.

Robusta pushed higher into the morning in good volume, with much of the activity revolving around structure. May/July traded back out to $15 discount before narrowing to just $2 discount by late morning. July/Sept put together good turnover around level money. Further changes in Brazil crop numbers encouraged the strength in New York which dragged London higher.

COT numbers this week were interesting with the board down $38 over the reporting period with the open position increasing by 6,356 lots. It appears a clear swap of exposure with the Processors increasing their gross short by 6.561 lots being offset with new longs in from the Managed Money sector which added 6,116 lots to the gross long book. This takes their net long exposure to 30,461.

After Thursday’s rally the open position for Robusta was down 1618 lots driven by the sorting out of May exposure. Prices lost traction into the settlement with the board pulling in a combination of origin selling coming to the market and intraday liquidation to significantly reduce the day’s gains.