The latest Commitment of Traders report from the New York arabica coffee market has seen the shorter term in nature Managed Money fund decrease their net long position by 1.63% within this market over the week of trade leading up to Tuesday 18th June 2024; to register a new long position at 60,645 Lots. The longer term in nature, Index Fund sector of this market increased their net long position by 1.14% within the market, to register a new net long position of 48,994 Lots on the day.

Over the same week, the Non-Commercial Speculative decrease their net long position by 3.60% within the market over the week of trade leading to Tuesday 18th June 2024: to register a new net long position of 43,321 lots, which is the equivalent of 12,281,312 bags. This net long position has most likely been increased following the period of mixed but overall firmer trade that has since followed.

Over time, the involvement of funds in the coffee futures markets has significantly increased, reflecting broader trends in the search for diversified investment opportunities. Initially, coffee futures were primarily the domain of producers, traders, and large-scale consumer roasters seeking to hedge against price volatility. However, as financial markets evolved, institutional investors, hedge funds, and other speculators recognised the potential for substantial returns in the commodities markets, including coffee. This influx of capital from non-traditional participants has led to greater liquidity and trading volumes in coffee futures, while also contributing to heightened volatility as market movements increasingly reflect speculative activity rather than just supply and demand fundamentals. Consequently, the dynamics of the coffee futures markets now intertwine more closely with global financial trends, economic indicators, and investor sentiment that is interconnected with the broader economic landscape than ever before.

The New York coffee market has long been dominant in setting the daily market and movement trend, primarily through the trading of arabica coffee futures in volume on the Intercontinental Exchange (ICE). Historically, the London coffee market, which deals with robusta coffee, has operated largely as a cash and carry market, focusing on the physical trading of coffee with nearby delivery, generally in volume terms playing second fiddle to the New York market. In recent times, the London market has evolved with the advent of heightened demand for robusta coffee in a shortfall market environment contributing toward daily volatility, sentiment and direction within the coffee markets. Consequently, within the prevailing environment London market's influence has expanded, contributing more substantially to price structures and speculative trade albeit that in representation terms, world robusta is still 43.50% of the world coffee supply. This is further illustrated in the average daily volumes traded on the London Futures Market, which are in region of 9,500 Lots or 1,500,000 bags, whereas the New York Arabica Futures Market often sees volume in excess of 24,000 Lots or 6,500,000 bags.

The London coffee market continues to reflect the spot market shortfall in the inverted structure and of late, record spreads between nearby futures months. This costly inverted structure removes liquidity from the physical market as the cost of carrying coffee, including storage, and finance, discourages origin exporters, traders and industry from holding coffee for extended periods of time. The current large spread between the prompt month in the London market and the further out months, with the prompt month being more expensive, indicates a market condition known as backwardation or inversion. This situation typically arises from immediate supply shortages or heightened near-term demand, causing the price of coffee for immediate delivery to be higher than that for future delivery. The already prevalent squeeze in robusta prices follows a tandem development of an increased allocation and demand for robusta coffee in the international blend, and two back-to-back years of consecutive lower production, in the region of 2 million bags per year, from leading robusta producer and exporter, Vietnam. Most recently, the continued supply challenges and logistical delays have created a need for roasters to turn to consumer country held coffee stocks and is reflected once more in the inverted market structure as spot demand seemingly outstrips supply.

The Certified washed Arabica coffee stocks held against the New York arabica market were seen to increase by 6,990 bags yesterday, to register these stocks at 842,434 bags, with 98.93% of these certified stocks held in, Europe at a total of 833,391 bags and the remaining 1.07% being held in the USA at a total 9,043 Bags. Of this, a total 437,113 bags, or 51.89% of the coffees registered and stored in consumer country certified warehouses of the exchange, are Brazil washed arabica, and a further 15.55% of these certified coffees, originating from Honduras. The pending grading stocks were seen to decrease by 8,050 bags; to register 44,162 bags pending grading on the day.

The September 2024 to September 2024 contract arbitrage between the London and New York markets narrowed yesterday, to register this at 42.56 Usc/Lb. This equates to 18.56% price discount for the London Robusta coffee.

It was a softer day overall on the commodity markets yesterday, with the US Dollar gaining over 0.20% on the day to see the leading in influence Oil markets firmer on the day. The Cocoa market ended the day on a positive note, while the Coffee, Corn, Soybean, Sugar, Wheat, Gold, Silver, Platinum and Palladium markets ended the day on a negative note. The day starts with the U.S. Dollar trading at 1.268 Sterling, at 1.070 the Euro and with the US Dollar buying 5.451 Brazil Real.

The New York market started the day yesterday trading to the north of par on a modest firmer note, while the London market started the day trading on a softer note. The markets quickly attracted some degree of selling pressure to drop back below par and trend in a softer direction for the remainder of the early morning session. The New York and London markets continued in a softer direction albeit under modest volumes for the mid-morning session. As the afternoon progressed, the volume increased marginally to contribute to the day’s direction with speculative selling on the New York floor assisting to trigger stops along the way. The London market followed suit and the markets continued to project lower with a large degree of speculative long liquidation to accentuate the losses for the day’s trade, seeing both the New York and London markets trade within a large range on the day. The markets continued to be pressured lower for the remainder of the day to settle on the lows for the day at the close.

The London market ended the day on a negative note with 89.40% of the earlier losses of the day intact, while the New York market ended on a likewise negative note, with 78.09% of the earlier losses of the day intact. This softer close for the markets with both the New York and London markets tracking softer throughout the session to settle near to the lows of the day, will likely see the markets, set for a follow through hesitant start to early trade today, against the prices set yesterday, as follows:

LONDON ROBUSTA US$/MT                 NEW YORK USC/LB.

SEP     4117 – 135                                       SEP    229.30 – 6.95
NOV   3937 – 126                                       DEC   227.25 – 7.00
JAN     3773 – 112                                      MAR  225.70 – 7.10
MAR   3686 – 106                                      MAY   223.75 – 7.00
MAY   3624 – 105                                      JUL      221.60 – 7.00
JUL     3566 – 105                                      SEP      219.25 – 7.00
SEP     3483 – 105                                      DEC     216.80 – 7.00
NOV   3438 – 105                                      MAR    214.80 – 6.95