ICE Coffee Futures Rocket Higher On Dry Weather

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Arabica coffee futures posted another day of solid gains as extended weather forecasts see little change in Brazil’s dry spell. The active contract for March delivery climbed 1075 points to settle at 135.95 cents a pound, only briefly retracing its steps during the day as it surged higher. Switches were also actively traded, making up over 50% of the 79,000 lots traded today with the March contract drawing to first notice day this February 20. With the market firmly subjected to speculative reactions to climate headlines and origin patiently holding out for higher prices, it appears that technical factors have become unimportant and only news of rain will be able to temper this frenzy. Interestingly, SOMAR historical reports noted that 2013 rains were perfect, a fact that has done little to dampen concerns over soil moisture and high temperatures. The open interest from Friday only increased 1,736 lots despite the heavy volume. In financial markets, emerging market currencies continue to devalue, making headlines across the globe with little effect on coffee prices. In Brazil, the real closed sharply lower reversing from early gains. The currency ended at BRL 2.4331 from BRL 2.4173 it settled on Friday. The selloff on the equity market put pressure on the real.  In Colombia, the minister of finance announced that the subsidy for the farmers will be delivering under the same scheme as the last year.  The Colombian peso also declined finishing a COP 2,046.50 down COP 30.50.  

 

London: Robusta provided follow-through to the upside after the strong end of week settlement. The continued spec buying combined with arbitrage associated interest provided the drive higher as the market moved beyond the next upside target of 1850 in March. Options are interesting around these values with so many Calls becoming live on this rally. Looking at March between 1750 and 1800 over 7,000 in March and against May over 11,000. This could become a more important issues if the upside swing loses traction and we have rain in Brazil next week. The technical and fundamental confidence has grown significantly during January which has rolled over into the new month. Origin very confident to run with the action showing limited response. London’s COT report reflected the “Processors” carrying 11,726 short which was an increase of 1,915 as a result of fresh shorts whilst the “Managed” long increased the net long by 441 lots to 13,284 which appeared below most expectations. This was as a result of shorts covered rather than new longs which were a surprise to many traders helping to encourage the trend of the market. The open position increased 3,624 lots after the aggressive move on Friday supporting the technical upside break to close the month. Another impressive performance as the market continued to tick the right boxes on the upside clearing the next marker of 1850 in March in good turnover.