Coffee rebounds from 7-year low, supply outlook heavy

LONDON - Coffee futures fell to a 7-year low on Thursday before rallying, pausing after a prolonged slide as the prospect of a huge 2014 crop in Brazil added to concerns about excess supplies.

 

The market has been falling for more than two years with large crops in Brazil and a rebound in Colombian production driving prices down from a peak of more than $3 per lb in May 2011 to a low on Thursday of barely more than $1.

 

However the slide was later halted in a turbulent session, with December arabica coffee futures on ICE last up 3.20 cents or 3.15 percent to $1.0470 per lb by 1541 GMT. Prices earlier tumbled to $1.0095, the lowest since October 2006.

 

"Given it's been in free fall for a couple of weeks, there's going to be a correction at some point," a London-based broker said, referring to the sporadic rallies seen in falling markets as profits are taken on short positions.

 

Speculators have been making increasingly large bearish bets on coffee in recent weeks.

 

Weather has been generally favourable for next year's Brazil harvest, which will begin in May, and when some analysts believe production could reach a record 60 million bags.

 

"There's a big supply overhang going into Brazil's on-crop next year and Colombia is recovering," said Macquarie analyst Kona Haque.

 

2014 is an "on" year in Brazil's biennial cycle which sees production rise and fall from one year to the next, as trees need time to recover after bearing large amounts of cherries.

 

Colombia's coffee output in October was 1.06 million 60-kg bags, the highest for the month since 2007, as the world's biggest fine arabica producer recovers from a roya fungus epidemic and the widespread replacement of trees designed to combat it.

 

Liffe January robusta coffee was up $14 or 1 percent at $1,468 a tonne, weighed by a strong crop in Vietnam, the largest producer of robusta beans.

 

Vietnamese farmers have harvested on average 20 percent of the new 2013/2014 coffee crop in the Central Highlands, traders said, indicating ample bean supply.

 

COCOA SAGS

 

ICE March cocoa was down $58, or 2.1 percent, at $2,685 a tonne, consolidating after Tuesday's sharp rise as the Ivory Coast harvest accelerates, although firm demand limited losses.

 

"The pattern of the market has been quite extraordinary, where we've had a relatively small number of quite sharp up moves and then a period of consolidation," said Jonathan Parkman, joint head of agriculture at Marex Spectron.

 

Parkman said that this was a pattern repeated on an almost monthly basis and looked set to continue.

 

"Fundamentally the market needs to rise further than it has done already," he said, adding that market consensus was for a deficit of around 100,000 tonnes this year.

 

"At these sorts of prices we're going to have another deficit and then another deficit."

 

March cocoa on Liffe stood 24 pounds or 1.4 percent lower at 1,711 pounds a tonne.

 

ICE March raw sugar futures lost 0.04 cent or 0.2 percent at 18.06 cents a lb, after hitting a five-week low of 17.93 earlier in the session.

 

U.S. data showed on Wednesday that speculators raised their net long positions in the week ended Oct. 29.

 

"The figure was probably higher than a lot of people were talking," a trader said, adding that the funds seemed overly long, presenting some difficult decisions for managers.

 

"I think the funds are left with a choice: are we going to sit this out and hope that it will bounce, or are we going to cut our losses and go from there?"

 

The trader said the latter option was more likely if Thursday's session closed beneath 18 cents.

 

December white sugar on Liffe was off $3.60, or 0.8 percent, at $476.40 a tonne.  — Reuters