Commodity traders are shipping arabica coffee from Europe-based ICE futures exchange warehouses to the United States, five trade sources told Reuters, reflecting the impact of erratic weather on global supply that could raise costs for the popular drink. The bulk of global arabica coffee, the most commonly used variety, is produced in central and south America so shipping it from one major consuming region to another is highly unusual.
Drawing beans out of ICE exchange stockpiles rather than from private, commercial stocks also means all market participants will see the stock fall - a move likely to push world coffee prices beyond near-10 year highs. Benchmark ICE arabica coffee futures have been boosted by freak frosts and intense drought in top producer Brazil last year that helped push the global market balance into a forecast deficit of 8.45 million bags for the current season.
The ICE exchange is the world's main coffee futures trading venue and any sign of further erosion of its stocks - already near 20-year lows - will heighten supply worries. "I don't ever remember a significant amount of arabica going from Europe to the U.S.," said a Swiss-based coffee trader at a leading global trade house, who has nearly 20 years experience in the sector.
He explained that more than 100,000 60kg bags of arabica previously certified for delivery against ICE futures contracts left exchange-registered warehouses in Antwerp last week for the United States. Traders expect up to 250,000 more bags of certified coffee - equivalent to about a quarter of the exchange's current 1.01 million bag stockpile - will leave Antwerp for the United States over the next couple of months.
At the same time, very little arabica is likely to be delivered into the exchange, with traders currently reaping significant premiums for fresh coffee on spot markets. Honduran coffee, a benchmark grade that accounts for just under half of ICE exchange stocks, is currently trading at a record spot premium of 42 cents per lb above an ICE futures price of $2.3 per lb.
The same coffee wouldn't attract any premium if delivered to the exchange. Given that Honduran exchange stocks are about three years old or more, they are currently trading at a discount of 10-15 cents to the futures price, traders say, making them up to 57 cents or 25% cheaper than spot coffee.
The discount covers shipping costs to the United States as the coffee moved on carriers known as breakbulk, where rates are around 50 percent cheaper than container vessels. "The question is not about the 100,000 bags coming off (exchange stocks), it's about how much more is going to come off before the market pops," said a veteran coffee analyst at a Europe-based global trade house.
Nearly all ICE arabica stocks are in Antwerp, data shows. If they fall by just another 100,000 bags, that would take them to the lowest since the early 2000s - a move likely to trigger automatic buy signals from black box funds that account for the lion's share of ICE trading volume. Top producer Brazil is also about to enter winter.
Last year, Brazil's coffee trees were damaged by severe frost, leaving market jitters on the prospect of more given recent erratic weather patterns linked to climate change. ICE arabica futures have come under pressure recently due to concern that soaring global inflation will hurt economic growth and with it, coffee demand, but traders say prices are not reflecting the supply shortfall.
Premiums for nearly all central and South American coffee grades are at record levels, making exchange stocks more desirable. "Exchange stocks are by far the cheapest in the market and premiums are implying the futures are underpriced," said another Swiss-based coffee trader at a global trade house.
(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)
Email: info@devdiscourse.com Phone: +91-130-6444012, +91-7027739813, 14, 15