Coffee Markets Show Strength Amid Speculative Activity and Weather Concerns in Brazil
The latest Commitment of Traders report for the New York arabica coffee market reveals a shift in speculative positions. Over the week leading up to September 3, 2024, Managed Money funds reduced their net long position by 4.76%, bringing it to 56,200 lots. Meanwhile, the Index Fund sector slightly increased its net long position by 1.11%, reaching 53,168 lots.
During the same period, Non-Commercial Speculative traders reduced their net long positions by 9.48%, settling at 39,101 lots, which equals 11,084,960 bags of coffee. This reduction likely follows a period of mixed but generally weaker trade.
As Brazil’s coffee harvest nears completion, weather reports indicate that hot and dry conditions will persist through the end of September. Soil moisture remains low, and while the seasonal rains, expected in October, are necessary for setting flowering and supporting fruit development for the next arabica crop, intense rains are forecasted for some coffee-growing regions next month. These rains are crucial for the arabica plants, which will spend about ten months developing before the mid-2025 harvest.
Certified washed arabica coffee stocks on the New York exchange saw an increase of 2,840 bags, bringing the total to 846,687 bags. Of these, 97.74% are stored in Europe (827,528 bags), while 2.26% are held in the USA (54,399 bags). Brazil washed arabica accounts for 46.81% of these certified stocks, and Honduran coffee makes up 12.23%. Pending grading stocks also rose, adding 14,710 bags for a total of 58,502 awaiting grading.
The arbitrage between the November 2024 and December 2024 contracts for the London robusta and New York arabica markets widened to 23.55 U.S. cents per pound, equating to a 9.60% price discount for London robusta coffee.
In the broader commodity markets, investors responded to the anticipation of an upcoming U.S. Federal Reserve interest rate cut, although key U.S. Consumer Price Data expected tomorrow could impact market direction. Coffee, corn, soybean, wheat, cocoa, gold, silver, platinum, and palladium all ended the day higher, with wheat prices remaining steady. The sugar market was the exception, ending on a softer note. As of the start of the trading day, the U.S. dollar was trading at 1.307 against the British pound, 1.104 against the euro, and 5.583 against the Brazilian real.
In the coffee markets, New York began the day on a softer note, while London opened firmer. The London market quickly gained momentum, gapping higher early in the session despite limited trading volume. New York initially hovered around par but found support mid-morning. As the day progressed, both markets saw increased momentum, with New York pushing higher as buy stops were triggered. Speculative short covering activity fueled the upward trend, and the arrival of U.S. traders brought more volume, particularly to New York. The session remained choppy but trended upward, with both markets making significant gains throughout the afternoon.
New York’s upward momentum continued until late in the session, when it was capped slightly before the close, settling on a firm note. London followed a similar trajectory, ending the day firmly with most of the earlier gains intact.
At the close of trading, the London market retained 87.68% of its earlier gains, while New York held on to 92.16%. This strong finish for both markets suggests potential support and continued upward momentum, with both exchanges closing near their daily highs on solid trading volumes.
