ICE Coffee Futures Lower As More Selling Materializes

Arabica prices began the month of March under additional selling pressure after Friday’s Commitments of Traders data confirmed the fastest rate of Managed Money long liquidation in over a year. The active contract for May delivery declined 2.15 per pound to end at 138.35 cents. The managed money reduction in long positions was 49% week over week, and underscores the perception of ample physical coffee throughout the world. Moreover, solid precipitation in Brazil coffee zones during the month of February have forced analysts across the industry to rethink the supply/demand balance as the largest producer prepares for the new harvest in April/May. During the session, a good amount of commercial participation was noted as origin/exporter selling was abundant and a good amount of AAs (exchange for physicals) were registered on the day. Some scale down roaster buying was evident, but not sufficient to keep spot prices above the 140.00 level (basis May). The bearish tone continued despite sharply oversold technical indicators, and a seasonal chart that for the previous 3 and 5 year averages indicates we SHOULD HAVE seen a price rally after the March notice period began. Looking ahead, key support and resistance levels are initially seen at 135.10 and 143.50, respectively.
London Market - Follow-through short-covering drove London $17 higher in the morning session but the market was unable to gain traction to the upside with momentum shorts driving the market lower in the afternoon session, following the lead in New York. Despite the market’s negative technical configuration, origin was hesitant to take action and little to no volume was seen from Asia bringing the day’s total volume to under 10,000 lots. The K15/K15 arbitrage further weakened today to + 0.53, the lowest level since December 2013 which could prompt roasters to switch to Arabica in the short-term amid dwindling prospects for New York.
The London COT report was surprising in that Managed money exposure actually increased over the period 17/02 to 24/02 with the net long position increasing by 2,195 lots to 22,127 lots as managed money type activity migrated into London amid high volatility in New York. The merchant net short position decreased by 3,655 lots as a result of roasters fixing into the weakness in London with the 2000 basis K15 eyed as an attractive fixation level. London’s composition looks dangerous at this point and if weakness in New York continues, migratory longs could produce the same volatilities we have seen in New York in the Robusta sphere.