DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Coffee prices skyrocketed on Tuesday, posting gains for the sixth straight session as the brewing global supply crunch seeped deeper into market sentiment.
Coffee futures have risen 20% since June 7 as traders have increasingly come to understand that two consecutive years of poor harvests in Central America and key coffee grower Colombia will put a dent in supplies that won't be offset by Brazil, which this year is expecting its biggest-ever harvest, albeit of lower-quality arabica coffee beans.
On Tuesday, arabica coffee for July delivery settled 8.40 cents, or 5.5%, higher at $1.5935 a pound on ICE Futures U.S.
The price of actual coffee beans changing hands in the so-called physical markets has long been at a premium to futures prices. For example, the daily export price set by Colombia's National Federation of Coffee Growers was set at $2.232 cents a pound on Monday.
The move in futures prices probably won't immediately translate into higher beverage prices at roasters such as Starbucks Corp. (SBUX), who contract their coffee-bean supplies well in advance and separately from the futures market.
Overall, however, the tight supply situation could pinch the pocketbooks of coffee drinkers over the longer term.
"The market is finally responding to the tightness in the physical market," said Judy Ganes-Chase, an agricultural commodities analyst and president of JGanes Consulting in Katonah, N.Y. "A lot of people were looking at the large Brazilian crop as a salvation, but it's not."
The high-grade Brazilian arabica beans coming in since early June are being quickly absorbed by the caffeine-starved market, analysts say. Trade in Brazil thus far into the harvest has been light because a standoff of sorts has developed: Producers are waiting for the highest price point to sell, while merchants are waiting for a flood of supplies to weigh on prices before they buy.
Compared with other commodities, coffee is a niche market. In crude oil, 550,000 lots traded on Tuesday. In coffee, that number was 61,533 on a high-volume day. Its relatively small size makes it more vulnerable to wild price swings.
Several market participants said coffee's jump was triggered last week by a big agricultural trading house. The firm had been taking short positions in the futures market to lock in prices for the coffee it promised to deliver to roasters. The firm decided to buy those offerings back. This set off a chain reaction among speculative investors who were betting that prices would fall
further. They, too, were forced to buy to cut their losses. At the same time, the sharp spike attracted buying from bullish traders who anticipated prices would continue their move higher.
This trend began last week on NYSE Euronext's Liffe market as traders covered short positions in robusta coffee there for the same purposes. July futures on that market rose 16% since July 7.
Supply worries are being compounded by relatively low stockpiles of coffee that can be delivered against the ICE contract. Coffee stocks on Tuesday fell by more than 4,000 bags, each weighing 60 kilograms, to 2.6 million. This time last year, these certified stockpiles totaled 3.663 million bags. European inventories also fell 4.7% on the month to 10.7 million bags as of end-April, according to European Coffee Federation figures released Monday.
Brazil is the world's largest coffee producer and No. 2 consumer. The coffee crop for the year ending June 2011 is forecast to be 23% higher at 55.3 million bags, according to a U.S. Department of Agriculture attache. Some industry estimates peg production at as high as 60 million bags.
Coffee is still cheaper than the historical average. In 1997, prices spiked to more than $3 a pound, a delayed reaction to a 1994 front in Brazil that hit output, Ganes-Chase said.
ICE coffee open interest--the number of active positions left at the end of the session-- decreased by 3,288 lots Monday to total 150,072 lots, according to exchange data.
Volume was estimated at 61,533 lots, according to exchange data. In options, approximately 15,964 calls and 11,194 put options traded on the floor.
ICE Change Range Liffe Change
Jly $1.5935 +8.40c $1.4800-$1.6070 Jly $1,551 -$17
Sep $1.5995 +8.35c $1.4815-$1.6105 Sep $1,570 +$12
-By Holly Henschen, Dow Jones Newswires; 212-416-2138;
holly.henschen@dowjones.com
NEW YORK (Dow Jones)--Coffee prices skyrocketed on Tuesday, posting gains for the sixth straight session as the brewing global supply crunch seeped deeper into market sentiment.
Coffee futures have risen 20% since June 7 as traders have increasingly come to understand that two consecutive years of poor harvests in Central America and key coffee grower Colombia will put a dent in supplies that won't be offset by Brazil, which this year is expecting its biggest-ever harvest, albeit of lower-quality arabica coffee beans.
On Tuesday, arabica coffee for July delivery settled 8.40 cents, or 5.5%, higher at $1.5935 a pound on ICE Futures U.S.
The price of actual coffee beans changing hands in the so-called physical markets has long been at a premium to futures prices. For example, the daily export price set by Colombia's National Federation of Coffee Growers was set at $2.232 cents a pound on Monday.
The move in futures prices probably won't immediately translate into higher beverage prices at roasters such as Starbucks Corp. (SBUX), who contract their coffee-bean supplies well in advance and separately from the futures market.
Overall, however, the tight supply situation could pinch the pocketbooks of coffee drinkers over the longer term.
"The market is finally responding to the tightness in the physical market," said Judy Ganes-Chase, an agricultural commodities analyst and president of JGanes Consulting in Katonah, N.Y. "A lot of people were looking at the large Brazilian crop as a salvation, but it's not."
The high-grade Brazilian arabica beans coming in since early June are being quickly absorbed by the caffeine-starved market, analysts say. Trade in Brazil thus far into the harvest has been light because a standoff of sorts has developed: Producers are waiting for the highest price point to sell, while merchants are waiting for a flood of supplies to weigh on prices before they buy.
Compared with other commodities, coffee is a niche market. In crude oil, 550,000 lots traded on Tuesday. In coffee, that number was 61,533 on a high-volume day. Its relatively small size makes it more vulnerable to wild price swings.
Several market participants said coffee's jump was triggered last week by a big agricultural trading house. The firm had been taking short positions in the futures market to lock in prices for the coffee it promised to deliver to roasters. The firm decided to buy those offerings back. This set off a chain reaction among speculative investors who were betting that prices would fall
further. They, too, were forced to buy to cut their losses. At the same time, the sharp spike attracted buying from bullish traders who anticipated prices would continue their move higher.
This trend began last week on NYSE Euronext's Liffe market as traders covered short positions in robusta coffee there for the same purposes. July futures on that market rose 16% since July 7.
Supply worries are being compounded by relatively low stockpiles of coffee that can be delivered against the ICE contract. Coffee stocks on Tuesday fell by more than 4,000 bags, each weighing 60 kilograms, to 2.6 million. This time last year, these certified stockpiles totaled 3.663 million bags. European inventories also fell 4.7% on the month to 10.7 million bags as of end-April, according to European Coffee Federation figures released Monday.
Brazil is the world's largest coffee producer and No. 2 consumer. The coffee crop for the year ending June 2011 is forecast to be 23% higher at 55.3 million bags, according to a U.S. Department of Agriculture attache. Some industry estimates peg production at as high as 60 million bags.
Coffee is still cheaper than the historical average. In 1997, prices spiked to more than $3 a pound, a delayed reaction to a 1994 front in Brazil that hit output, Ganes-Chase said.
ICE coffee open interest--the number of active positions left at the end of the session-- decreased by 3,288 lots Monday to total 150,072 lots, according to exchange data.
Volume was estimated at 61,533 lots, according to exchange data. In options, approximately 15,964 calls and 11,194 put options traded on the floor.
ICE Change Range Liffe Change
Jly $1.5935 +8.40c $1.4800-$1.6070 Jly $1,551 -$17
Sep $1.5995 +8.35c $1.4815-$1.6105 Sep $1,570 +$12
-By Holly Henschen, Dow Jones Newswires; 212-416-2138;
holly.henschen@dowjones.com
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