The arabica coffee futures market at the International Exchange (ICE) could experience a squeeze on investors holding short positions for the July or September contracts as certified exchange stocks fall to very low levels, an analyst said on Thursday.
The so-called squeeze movement on commodities futures happens when investors, sensing reduced availability of the product at the exchange, build long positions to force other investors who are short to buy back their positions, since they would hardly find available stocks to deliver the product.
That movement normally results in spikes in the prices in the days close to the expiration of the contracts.
“There is a major risk of a squeeze in arabica futures, maybe in July or September,” Carlos Mera, head of coffee analysis at European bank Rabobank, said during a call with investors.
The certified arabica stocks at ICE are falling continuously for several months now as there is limited supply of that type of coffee in the market and stocks available are priced above the futures, so with not incentive to deliver.
Certified stocks at ICE were at 583,518 bags on Wednesday, the lowest since December and down from 1.06 million bags a year ago.
Mera said that the most likely outlook is that only around December fresh bags of arabica coffee will arrive at the exchange, possibly semi-washed coffees from the Brazilian 2023/24 crop.