The revival in arabica coffee prices may prove more than a
temporary blip, commentators said, as speculators showed a huge turnaround in
sentiment towards the bean, closing a stack of short positions.
"The breaking dawn for arabica coffee may have finally
arrived," Joyce Liu at Phillip Futures said, attributing the turnaround to
sentiment towards disease pressures in Central America, as highlighted by the
International Coffee Organization, besides ideas of reduced selling by growers.
"After easing more than 30% last year, and trading mostly
sideways at its low for two months, we see the potential of short term strength
that may send prices above 160 cents a pound," she said.
Besides coffee leaf rust and cherry borer beetle, Central
American countries such as El Salvador and Guatemala, which produce prized arabica
beans, also face an outbreak of roya fungus, which reduced yield potential by
causing coffee tree leaves to turn black and fall off.
Separately, Brazil's Conselho Nacional do Café producers'
group flagged "positive" fundamentals, with 2013 an "off" year in the country's
cycle of higher and lower producing years, and said a Goldman Sachs report was
also "likely" supporting the market.
Speculators' net longs in New York softs, Jan 15, (change on week)
Cotton: 24,944, (+2,017)
Cocoa: 22,822, (-1,574)
Raw sugar: 12,169, (-759)
Arabica coffee: -12,162, (+10,159)
Sources: Agrimoney.com, CFTC
Goldman said last week that while output from Brazil, the
top arabica-producing country, would likely prove relatively high in 2013 for
an off year, "dry weather in northern Brazil and pest/disease pressure in
Central America remain a downside risk to production.
"Given still low inventories, we see limited further
downside to prices," which should recover "modestly" this year, ending at 175 cents
a pound, a little above the 168.00 cents a pound that New York futures are
Arabica coffee prices have previously staged recoveries, in
June and October, only for these to give way under pressure from fresh selling.
Rash of short-covering
The improvement in sentiment, evident in a recovery in
futures of some 19% from a two-year low reached last month, was also evident in
regulatory data late on Friday showing speculators slashing their net short
exposure by more than 10,000 contracts in a week.
Speculators' net longs in grains and oilseeds, Jan 15, (change on week)
Chicago corn: 141,849, (+26,736)
Chicago soybeans: 79,436 (+16,184)
Chicago soymeal: 26,574, (-9,614)
Kansas wheat: 18,526, (+1,646)
Chicago wheat: -17,918, (-83)
Chicago soyoil: -32,495, (+4,521)
Sources: Agrimoney.com, CFTC
The rash of short-covering in New York futures and options,
the most for at least a year, reduced managed money's net short position to
12,162 lots, a three-month low, data from the Commodity Futures Trading
Commission showed.Speculators also turned more positive on New York cotton,
and in Chicago reversed course on pessimistic position in corn and soybeans too.
The managed money net long in soybeans rose by 6,184 lots
over the week, after three weeks of decline totalling some 36,000 lots.
In corn, speculators raised their net long for the first
time in six weeks, by 26,736 lots, in a week which brought a surprise US
Department of Agriculture downgrade to the forecast for domestic inventories of
the grain as of the close of 2012-13.
unsettling the markets'
However, speculators made a small addition to their net
short position in wheat, despite the USDA lowering their estimate for
inventories in that grain too, and caution over the poor state of the US winter
"The long-discussed subject of the US drought is now
increasingly unsettling the markets again, as there is still no end in sight to
the dry conditions in the key growing areas of the US Great Plains, which
therefore threatens to significantly reduce the 2013/14 season harvest,"
"Investors, on the other hand, still remain sceptical about
the development of prices - the latest CFTC market positioning data indicate
that an overwhelming majority of investors assume prices will fall."