Trade view /
31 October 2017 at 9:55 GMT
132.5 & 138
Fund short sellers in Arabica coffee have accumulated a record short position in the belief that a large 2017-18 crop may add additional pressure. There is now a growing risk, however, that funds are too short, too soon, and potentially at the wrong price given the current hesitancy from Brazilian growers to release stocks with the price approaching the lower end of their ten-year trading range.
The managed money net-short reached a record 45,989 lots in the week to October 24, thereby eclipsing the previous record of 43,600 lots from June. Two previous short-covering rallies this year led to a 22% rally from June to August and a 10% rally during September.
Management and risk description
This is a mean reversal trade which raises the risk of failure given the current downtrend and overall news about ample supplies and improved growing conditions in Brazil, the world's largest producer. The weight of a record short position has however helped level the playing field thereby raising the potential of a price recovery. We use the December future or CFD which expires at or just before November 20.
KCZ7 or COFFEENYDEC17 both quoted as cents/lb
Buy ½ position at current market price (last at 125) and ½ on a break above 128
Sell on a stop at 122.50
Target: 132.50 and 138
Before expiry on November 20
— Edited by Clare MacCarthy
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