Any market or trading views are purely my own thoughts and views and in no way are to be considered investment advice.
Roasters remain historically undercovered on physicals due to a few key factors. First, the trade has been reluctant to make traditional forward offers, with both size and liquidity lacking. Additionally, traders have been charging the inversion and carry into Q2, making forward coverage more expensive. Compounding this, roasters are hesitant to commit due to uncertainty surrounding demand for Q1 and Q2. However, the one counterbalance is shipping uncertainty—waiting too long to secure coffee poses logistical risks, making timing critical. Pricey FOB Brazil differentials and ongoing shipping concerns suggest ICE NY certified stocks will be drawn down significantly in the first half of 2025.
On the paper side, roasters appear to be underpriced - at least historically. With limited coverage in both physical and paper markets, they are in a precarious position. Any significant pullback toward $3 would likely trigger aggressive buying, as roasters rush to secure both physical and paper exposure. Looking ahead to Q3, the market remains wide open, with uncertainty around both physical supply and paper positioning.
Meanwhile, stress is building in the smaller-scale roasting segment. The recent bankruptcy of Barrie House highlights ongoing financial strain, and more small firms may follow—whether through insolvency or acquisition. This signals broader pressure within the industry, particularly among less capitalized players.
For trade houses, the priority is managing risk, with a firm stance against allowing roasters to take coffee unpriced. Rolling of pricing should be avoided at this stage. Similarly, for lenders assessing exposure, a close review of OTC positions and plain vanilla optionality is prudent. A bull market will eventually break, and when it does, roasters’ accumulated positions—particularly through structured products—could become a major liability.
The weekly chart shows a decent pullback in prices. It is too early to call a definitive top. The price action into the recent March expiry did "feel" like capitulation from the trade. Calendar spreads seem a safer place to play a short if you are interested, with Dec/Mar and Dec/Dec in Arabica starting to retract recent moves.
Arabica Coffee - 2nd Contract Rolling - weekly candlestick chart
Dec/Mar - Arabica Coffee
