Inflection Point for Coffee Signals Rally for Starbucks Beans

  • Open interest has surged to record, driven by bearish bets
  • Price is ‘very vulnerable to a short-covering rally’: FCStone

When everyone’s eager to sell, it might be time to think about buying. That’s the logic that could be soon be gripping the coffee market.

The data signaling this possible inflection point is a groundswell in open interest, or contracts outstanding, that’s driven the measure to an all-time high. The surge has come as speculators added to their bearish holdings, leaving the market “very vulnerable to a short-covering rally,” Hernando de la Roche, senior vice president at INTL FCStone in Miami, said in a telephone interview.

Prices for arabica coffee, the smooth variety favored by Starbucks Corp., have slumped almost 9 percent since the end of July as traders shrugged off concerns over adverse weather in Brazil, the world’s top grower and exporter. 

But forecasters including Citigroup Inc. and Rabobank International are predicting a fourth straight global deficit. Meanwhile, some of Brazil’s regions are at risk for more crop-damaging dryness over the next week, according to Bethesda, Maryland-based Commodity Weather Group.

That means “the market is oversold,’’ de la Roche said. The recent plunge has left arabica prices at historical levels that render the risk-reward of further selling “not worth it” as “even a small issue with Brazil could spark” further gains, he said.

On ICE Futures U.S., arabica coffee for December delivery rose 2.1 percent to $1.2685 a pound Thursday in New York. Prices reached a three-month low of $1.23 earlier this week.

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