"Mar arabica coffee (KCH20) this morning is down -0.35 (-0.27%), and Jan ICE Robusta coffee (DFH0) is not trading today due to the Boxing Day holiday in the UK.
Arabica coffee is lower this morning on signs of favorable weather in Brazil after Somar Meteorologia said today that it expects beneficial rains in Minas Gerais, Brazil's largest arabica coffee-growing area, over the next seven days with accumulation reaching as much as 50 mm (2 inches). Robusta coffee is not trading today due to the Boxing Day holiday in the UK.
A positive for arabica coffee is strength in the Brazilian real which is up +0.38% today at a 1-1/2 month high against the dollar. A stronger the real discourages export selling by Brazil's coffee producers.
Mar arabica coffee fell to a 2-week low Monday and Mar robusta coffee fell to a 1-1/2 month low as higher trading margins sparked long liquidation in coffee futures in the past week. The ICE Futures Exchange last Tuesday raised margin requirements on coffee futures contracts and the higher margins caused long-liquidation selling by traders who did not want to put up higher margin cash against their futures positions. Market moves were likely exaggerated by below-normal trading volumes during this holiday-shortened week.
Coffee futures are vulnerable to long liquidation pressure after last Friday's weekly Commitment of Traders (COT) data showed that funds increased their net-long arabica coffee positions by +3,932 in the week ended Dec 17 to a 3-year high of 54,530 contracts.
Coffee prices rallied sharply in November and early December and posted a 1-1/2 year high last Tuesday on the outlook for tighter global coffee inventories. Safras & Mercado on Dec 12 cut its Brazil 2019 coffee production estimate by -3.1% to 57.05 mln bags from April's estimate of 58.9 mln bags. Safras also projects that Brazil's 2019/20 coffee ending stocks will plunge -26.8% y/y to 2.32 mln bags and that Brazil 2019/20 coffee exports will fall -18.4% y/y to 34.4 mln bags. The International Coffee Organization (ICO) is forecasting a global 2019/20 coffee deficit of -502,000 bags compared with a +3.7 million bag global surplus in 2018/19.
Arabica coffee inventories continue to decline, which is supportive for coffee prices. ICE-monitored arabica coffee inventories fell to a 1-1/2 year low of 2.022 million bags last Monday.
Robusta coffee has support on weather concerns in Vietnam, the world's largest robusta coffee producer. The Vietnam National Center for Hydro-Meteorological Forecasting said last Monday it expects rainfall in Vietnam's Central Highlands, the country's largest coffee-producing region, to receive 20%-50% less precipitation than average this month."
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