Arabica coffee prices will be higher in nine months to a year because of low stockpiles, spurring investors who are expecting lower prices to reverse those bets, according to INTL FCStone Ltd.
Hedge funds and other money managers were net short, or betting on lower prices, by 12,105 futures and options as of June 19, Commodity Futures Trading Commission data show. Arabica coffee prices have dropped 28 percent this year because of record production in Brazil, the world’s largest grower. Stockpiles by Sept. 30 will be 24.1 million bags, the lowest since Sept. 30. 2001, U.S. Department of Agriculture data show.
“It looks to us at this point that the short position will be covered,” Stephen Pollard, a senior vice president at INTL FCStone (Europe) Ltd., said at a conference in Geneva today. “We are really struggling to see where the sales are going to come from, who is going to sell to the funds when they start buying.”
If funds revert to the position they were at by the end of 2010, that would generate buying of 40,000 contracts, he said. That corresponds to 10 million bags of coffee, he said. World coffee output will be 148 million bags in the 2012-13 season that starts in October, the USDA forecasts.
Robusta coffee will trade at $1,900 to $2,300 a metric ton in London for the next three months, Pollard said. The September futures contract was at $2,093 a ton at 3:21 p.m. in London.
“There is a big speculative position short arabica and long robusta in the market that will unwind,” he said. Bigger crops in Vietnam and Indonesia will limit price gains, he said.
The crop in Vietnam, the biggest robusta producer, will be 24.5 million bags, up from 20.3 million a year earlier, according to Holland Capital LLP, an agriculture investment company in London. In Indonesia, the third-biggest robusta grower, farmers will harvest 7.4 million bags of the variety in the 2012-13 season that started there in April, up 2 million bags from a year earlier, it estimated.
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