The global coffee market is experiencing extreme price volatility, fueled by real-time weather conditions in the Brazilian coffee lands and an uptick in speculation.
As of this writing, benchmark arabica coffee prices fell 10.6% from yesterday following initial reports from Brazil that frost touching the region may not have been as severe as expected. It was the largest single-day price decline in more than a decade.
Prices remain historically high, relatively speaking, at today’s mark of $1.807 per pound, after reaching a seven-year high of $2.078 on July 25.
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While the relatively high prices are popularly attributed to weather conditions and volume output estimates for the world’s largest coffee-producing country, Brazil, the price volatility is also being affected by record highs in market speculation, as financial actors attempt to capitalize on coffee market swings.
The Intercontinental Exchange (ICE), which maintains coffee futures benchmarks, yesterday announced an all-time high in “open interest” in coffee futures contracts.
In other words, the total number of futures and options contracts held by market participants at the end of the trading day yesterday was the highest in the 21-year history of the exchange, with more than 713,764 for robusta and 952,524 for arabica.
[Note: An original version of this story contained a typo. The Intercontinental Exchange (ICE) was incorrectly referred to as the International Coffee Exchange.]
Nick Brown is the editor of Daily Coffee News by Roast Magazine.
Such a racket.
Coffee market panicked over fear of a second frost in less than a month in Brazil’s coffee belt, so shorts were covering at the same time long speculators dove in, along with margin calls. When Frosty da Snowman didn’t show up this week, the smart money started selling short and as it tanked, the long speculators who were late to the party started bailing out, along with another round of margin calls. This behavior is not unheard of in coffee’s history.
Is the current “polar air mass” moving through the coffee regions more mild than feared?
New post and open Interests
That’s what happened – no frost in coffee belt last week. The fear of one provoked a speculative rally, followed by a reality check on the weather, and overbought technicals, along with margin calls. All made for a wild swing.