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FUTURES MARKETS – ICE posts biggest one day rally since May

Arabica coffee on ICE Futures U.S. jumped on Thursday to their highest level in two-and-a-half months posting the biggest one-day rally since May.

The benchmark September Arabica coffee contract gained 1,255 points, or 6.9% to close at 195.05 cents a pound, following the publication of bullish crop estimates.

In fact, Terra Forte, one of Brazil’s biggest coffee exporters, lowered its estimate for the country’s crop this year by 14% to 45.8 million bags expressing serious concerns for the development of the 2015/16 crop.

Underdevelopment of trees, and a higher incidence of leaf rust were cited as aggravating factors in the report.

Citigroup later in the session cut its Brazil 2014/15 output outlook to 41.75 million bags, down 5.6 from an April forecast.

“Next year’s crop is going to be even smaller,” Sterling Smith, a futures specialist with Citigroup in Chicago was quoted as saying.

Brazil’s National Coffee Council said earlier this week it expects the 2014 and 2015 coffee harvests to produce about 40 million bags of coffee each. The forecast for the current year is about 20% smaller than the original.

Coffee production at Cooxupe, Brazil’s biggest coffee cooperative with nearly 12,000 member, will be about 30% less than it had initially forecast this year because of the drought, the group’s president said Tuesday.

Cooxupe will produce about 4.1 million bags of coffee this year, compared with the 6 million bags the cooperative had predicted before the drought started in January.

The coffee market could record the first production deficit in three years in the 2014-15 coffee year, which begins Oct. 1, said Mauricio Galindo, director of operations at the London-based ICO.

The shortfall could reach 8 million to 10 million 60-kilogram bags, which would be the widest deficit since the 2005-06 crop year, Mr. Galindo added.