Despite Smaller Brazilian Crop, Fundamentals Still Favour Coffee Bears

By James Cordier and Michael Gross
13 Jun 2007 at 05:26 PM GMT-04:00

TAMPA, Fla. (Liberty Trading Group) -- The last six weeks have been good times for coffee bulls. While Arabica coffee prices at the NYBOT have experienced a mild rally, Robusta coffee, traded in London at the LIFFE have seen a substantial surge in prices. This is due primarily to tight supplies out of Vietnam - the world’s primary exporter of Robusta beans.

And while Robusta prices have dragged Arabica reluctantly higher, it is left to wonder what will become of Arabica prices in at the New York exchange as London prices level off, or even correct. We feel there will be an opportunity for call sellers in the Arabica (New York) contract this month and for that reason, will focus this article on New York Coffee.

For those unfamiliar with the growing seasons of Arabica coffee, June 21st begins winter in Brazil and the time of year when speculators often buy coffee calls in hopes of a Brazilian freeze driving up coffee prices. And why not buy calls? After all, in addition to winter freeze fears, there are plenty of other reasons to be bullish coffee. The 2006/07 Brazilian crop is "officially" projected to be the smallest in 7 years, with an expected yield of roughly 32.1 million bags of beans according to the latest government estimates. There are quality concerns affecting the market as well, as many traders feel heavy rains in growing regions earlier in 2007 will hurt bean quality. The International Coffee Organization is estimating a 6 to 8 million bag world coffee deficit this year. In addition, coffee prices have been in a relentless downtrend for much of 2007, bringing prices to levels that many feel are "cheap."

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