We likely haven’t seen the end of managed money sales in arabica coffee.

The hedge funds which in the week to last Tuesday turned net sellers in New York arabica futures and options by a net 21,889 lots, the fastest pace on data going back to 2006, may have worked a lot of negative sentiment out of their (algo) systems.

But history suggests that there is more to come.

Out of the 12 previous biggest bearish weeks for speculative positioning in arabica, all but one (the week to May 26 2015) were followed by further selling.

All the others were only stopping points in a longer spree, and followed typically by a further two-to-four weeks of selldown.

Price implications

Still, for investors worried that this means further falls in arabica coffee prices lie ahead, well, funds don’t always get it right.

That was underlined a week ago, when data showed them selling heavily in New York raw sugar on the eve of a 5% rebound in prices.

And in arabica coffee, analysis of the previous 12 largest times of net selling shows that, by a ratio of two to one, prices typically rise thereafter, on both two-week and one-month timeframes.

So coffee bulls should not lose hope that while prices ended up falling on Monday for a ninth consecutive session, a rebound could be in the offing.

 

What happened to coffee prices after large managed money selldowns of futures and options
Date of selldown (week to…)
 Net change in managed money position Price change over following 2 weeks
 Price change over following month
August 25 2015 -19,927 +0.6% +4.8%
February 11 2020 -18,285 +6.6% +11.0%
December 12 2017 -16,450 +4.4% +4.4%
June 19 2018 -15,293 -5.0% -7.8%
May 26 2015 -15,087 +10.7% +6.2%
February 4 2020 -14,698 +8.6% +19.4%
August 22 2017 -14,626 +0.5% +6.8%
June 2 2020 -14,116 -3.1% +4.1%
July 3 2018 -14,113 -2.4% -0.6%
October 3 2017 -13,980 -1.0% -1.2%
December 6 2016 -13,980 +4.3% +3.6%
October 7 2008 -13,980 +0.01% -1.2%
Sources: ICE, GrainPriceNews.