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Arabica coffee futures sidestep pressure from Brazilian rains

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Prospects look benign for Brazilian coffee plantations. So why didn’t arabica prices tumble heavily on Monday?


After a spell when drought has threatened to prohibit a good blossoming period translating into good fruit setting, so undermining prospects for the 2018 harvest in the world’s top producing country, rain indeed appears to be settling in.

(As it tends to at this time of year.)


“Rains should end moisture stress for nearly all Brazilian corn, soybeans, coffee and sugar cane in the next 10 days, with minimal flooding risk,” Commodity Weather Group said.


The moisture is “ending Brazil coffee bloom loss,” estimated a problem in nearly one-third of the coffee belt, mainly in Minas Gerais, “and should allow some rebloom”, the weather service said,


Price moves


Yet New York arabica futures held pretty steady, standing at 126.50 cents a pound in late deals, down just 0.1% on the day.


And even as London robusta futures were standing down 0.9% at $1,926 a tonne for the best-traded January contract.


Expiry process looms


Coffee bulls had, at least, three reasons for comfort that arabica values may hold.


The first is that robusta prices have their own reasons for volatility. As Rabobank’s Carlos Mera reminded Agrimoney, first notice day on London’s November robusta coffee futures contract is looming (Wednesday).


“You often get volatility before delivery,” Mr Mera said, noting also that there was “still quite a bit of open interest” in London’s November coffee contract, much of which will need to be unwound, unless concerned with physical delivery of beans.


Record net short


Then there is the observation that strong ideas over 2018 harvest prospects are already baked into prices.


Certainly, arabica coffee prices are already low. Over the past decade, spot New York futures have set a low of 101.95 cents a pound and a high of 305.30 cents a pound, making current values look very much towards the bottom of the range.


Of further support is that speculators already have a record net short position in arabica coffee futures and options, of 45,989 contracts, US regulatory data late on Friday showed.


It looks a brave call to add to this further given that prices are already so low, limiting the potential profits from short bets, while the large number of shorts already in place leaves the market open to a surge higher if speculators are tempted to close these bets en masse.


Producers hold off


There is also some idea that damage has already been caused.


“Only by late November and December the trees will clean themselves up and we will be able to visualise what it is left,” exporter Terra Forte said, adding that “as we know drought is always tricky”.


Certainly, Brazilian produces seem in no hurry to sell, undermining Brazilian exports, which Terra Force said have been “surprisingly low”.


“We thought that September and October would show better volumes at least above 2.5m bags but it seems we have overestimated.”


And in New York, forward sales of futures and options by commercial operators, at 88,394 contracts, are weak, down some 40% year on year – despite the fact that the 2018 harvest has been expected to exceed this year’s substantially.

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