Speculative selling by hedge funds caused coffee prices to fall in April

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Agrimoney.com reported on May 10 that the composite average price of ICO coffee fell 2.7 per cent to 130.39 cents per pound in April, a nine-month low, mainly affected by speculative selling by hedge funds, the International Coffee Organization (International Coffee Organization, ICO) said in its monthly report. Compared with the price at the beginning of the month, the comprehensive average price of ICO coffee fell by 6.9% at the end of the month. The report said that in the first half of 2016.10-2017.03, the global coffee market was well supplied, with global coffee exports growing by 4.8 per cent a year to 60 million bales. In the absence of significant fundamental changes, the global coffee market is expected to remain generally positive in 201718.

ICO said coffee prices fell significantly in the second half of April, including growth in global coffee exports, an increase in coffee stocks in major consumer countries and selling of hedge funds. In addition, the overall commodity market environment is not good, with most commodity prices falling, whether agricultural or non-agricultural commodities. In terms of coffee exports, Brazilian coffee exports increased by 2.4% in the first half of 2016, while Colombian coffee exports increased by 10.3%. By the end of March, U.S. coffee stocks had reached 6.7 million packets (60 kilograms each), the highest level since 1994.

ICO estimates that global coffee production will fall below consumption for the third consecutive year in 2016, with a production gap of 3.48 million bales; however, the increase in coffee exports and abundant coffee stocks in major consumer countries will be more than enough to make up for the impact of the lack of production. Among the major coffee producing countries, coffee production in Colombia has returned to its highest level in more than 20 years after overcoming the crisis caused by coffee rust.

On the price side, ICO says coffee, like other commodities, is seen by hedge funds as part of a portfolio rather than investing in the fundamentals of coffee. Therefore, under adverse circumstances, the net speculative position of US agricultural futures and options held by hedge funds reversed from a net order of about 80, 000 at the beginning of this year to a net order of 190000 last week, while coffee futures and options in New York reversed from a net order of 27000 at the beginning of the year to a net order of 12000, which has also become one of the main factors driving down coffee prices. ICO believes that in the current environment, coffee prices may continue to face downward pressure.

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