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Alternative Market Briefing

Macquarie warns hedge funds against big coffee bet

Tuesday, February 25, 2014

Komfie Manalo, Opalesque Asia:

Banking, financial, investment and funds management services advisor Macquarie Group warns hedge funds against their big coffee bet and said jumping in coffee futures risks being wrong-footed by a correction.

Macquarie made the warning after data from the U.S. Commodity Futures Trading Commission showed managed money, a proxy for speculators, raised by more than 116,000 contracts its net long in futures and options in the main 13 US-traded agricultural commodities in the week ending February 18. The rise is highest recorded in 16 months.

Agrimoney said Macquarie fears for a potential "violent swing downwards" in coffee prices. "Persistently below-average rainfall and warmer-than-normal temperatures across the key producing states of Minas Gerais, Sao Paulo and Espirito Santo have stressed coffee plants, with limited irrigation available. While it is too early to predict potential losses with certainty, Brazil's arabica yields and quality will be constrained during this season and the next," Agrimoney quoted Rabobank as saying.

Macquarie analyst Kona Haque warned that the rise in futures prices were fund driven. "New fresh [fund] longs have been added for fear of a market shortage, causing prices to break through various technical barriers. This in turn h......................

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