LIFFI coffee prices plunge to 30-year low

Biren Vakil

Coffee prices in the international markets have fallen to 30-year low amid all round trade selling and nervous long liquidation. Coffee futures traded at London plunged to new 30-year lows on Thursday, dogged by a global oversupply of Robusta beans and bearish sentiment. September coffee traded at the London International Financial Futures and Options Exchange- LIFFI ended at $498 a tonne.

‘‘Until producers reduces their production. They’re growing too much coffee and you’ve got to feel sorry for the farmers...but the bottomline is that the world doesn’t need that much coffee.” Operators are pointing the finger of blame at the two biggest producers Vietnam and Brazil but doubts whether they would
reduce the amount of beans grown in the countries. Farmers in Vietnam have grown so much coffee and planted so many trees, unless there’s a disaster in Brazil, there will be too much coffee.
Taking its cue from LIFFI, CSCE coffee futures came dangerously close to the 50-cent level. “It was the same as yesterday and the day before and the day before. Origins were sellers, specs and locals, but I saw some covering by funds,” said one broker.

The active September Arabica contract set a new contract low of 50.15 cents before settling at 50.45 an Lb. December coffee lost 0.75 cent to settle at 54.10 cents in a range of 54.50 to 53.80 cents. The back months ended easier by 0.55 to 0.70 cent.
Fundaments become increasingly bearish. Colombia’s main coffee port was operating normally Thursday despite a third day of highway protests by peasants demanding food import restrictions, port officials said. Weather conditions in top grower Brazil remain favorable. There is no damaging cold indicated during the next seven days,” according to Weather Services Corp.

US certified coffee stocks continued their nearly uninterrupted decline to 3,589,904 bags as of Aug 1, from 3,592,754 bags as of July 31. There were 4,000 bags pending grading now. Chartists lowered support for September to 50 cents and then 48.10 cents while resistance was seen at 51 cents. Thursday’s estimated volume reached 8,122 contracts from the turnover of 5,596 lots Wednesday. Estimated option volume measured 1,876 lots and puts came to 1,379 contracts Thursday. Indian punters burnt their fingers again
Several Indian punters who have taken a long position in the coffee have reportedly burnt their fingers again. It is just a repetition of 1997-98 fall when prices fallen to 88 cents from the high of 148 cents. This time around several punters went long around 65-70 cents, as they considered this level as a rock bottom.

According to a leading punter based at Ahmedabad, several punters, who trade CSCE coffee futures through unauthorized comex trade are still long. Stake in the coffee speculation is high, and risk and reward ration is much much higher.

Although several punters have lost huge amount during 1997-1998, some die-hard punters are still obsessed to speculate in the coffee. Wishing anonymity, a real estate developer turned punter said that several punters have lost huge amount in coffee, sugar, currency and bullion speculation through comex trade, but many of them are still sticking to it to recover their lost amount. ‘‘More they lose, more desperate they become, most of them have been caught in the vicious circle’ he said.

(Author is a partner, Paradigm Commodities, the views expressed are his own)