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Coffee Slips 2% as Hedge Funds Impact Arabica, Robusta Futures

May 11, 2017 at 16:59 by Andrew Moran

Coffee futures tumbled as much as 2% on Thursday as a new report blames hedge funds for having a major impact on arabica and robusta prices. Over the past month, coffee futures have slipped to multi-month lows, prompting industry experts to lay the blame on speculative investors.

July coffee futures fell $0.0235, or 1.72%, to $1.343 per pound at 16:44 GMT on Thursday on London’s ICE Futures exchange. Coffee futures are trading at nine-month lows, and have plunged more than 5% year-to-date. Coffee prices have been declining since reaching a peak of $1.80 in November.

The coffee market is paying close attention to a new report published by the International Coffee Organization (ICO). The biggest takeaway from the report is its authors’ blaming hedge funds for the steep drop in coffee prices, which has caused arabica and robusta futures to drop to monthly lows. These hedge funds are viewing certain commodities like coffee as an asset class rather than trading it based on the basis of supply and demand levels.

The sudden fall in prices in the second half of April is mainly the result of intensive activities of hedge funds selling off long positions.

Researchers added that the selling is part of the international coffee market gradually returning to balance. Although the ICO says global coffee production has fallen behind demand for the third consecutive year, the industry organization revised its forecast by 3.48 million bags.

During the first half of the 2016–2017 coffee marketing year, world coffee exports jumped by 4.8% to 60 million bags. This is due to increases from Colombia and Central America, regions that are filling the gap left by Brazil, the biggest grower of coffee.

Colombia has successfully recovered from the coffee leaf rust crisis, and increased production to levels last seen in the first half of the 1990s.

It was reported last month that global trade has picked up as the Indonesian coffee harvest blooms. At the same time, Vietnam remains an unknown factor because its production levels have slowed down and the quality of the output is low — the rejection ratio during the taste test has been higher than normal.

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