The London coffee market just got a blast of caffeine. The cost of Robusta delivered this month is near a record relative to beans from the next futures contract expiring in September. That’s because traders that were betting on lower prices at the end of last month now face a delivery of coffee that may be close to the maximum allowed.
The delivery so far is the biggest since November and accounts for 35 per cent of certified stockpiles on ICE Futures Europe. While the number of outstanding contracts suggests the amount of beans bought and sold will exceed the bourse’s normal limits, there are still five days before the July futures expire and it could decrease.
“The big question the market is asking is how big the delivery will actually be,” Toby Donovan, a broker at BGC Partners LLP in London, said by e-mail Friday. “With the current open interest, the delivery could be bigger than the limit, but there’s still time for it to come in below.”
Global coffee supplies outstripped demand for the past five years and it’s expected to continue, according to a unit of the U.S. Department of Agriculture. Output for next season may be 3.4 per cent higher than consumption, USDA estimates show. Robusta prices dropped 14 per cent this year.
The rising price of July futures over September, a market structure known as backwardation, doesn’t mean a shortage of coffee, said Carlos Mera, an analyst at Rabobank International in London. Farmers and speculators in Vietnam, the world’s largest Robusta producer, are holding at least 9 million bags of beans, or about 34 per cent of the crop, he said.
“There isn’t a massive shortage,” he said by phone Friday. The July premium emerged because “there was simply not enough time to prepare and ship coffee to be graded.”
Bloomberg News, edited by ESM
