(Bloomberg) -- Arabica coffee jumped the most in almost a month as the recent dip in prices and predictions of colder weather in top producer Brazil spur spot buying from roasters.
The September contract rose as much as 5.8% in New York, rebounding after a selloff on Monday added to a downward trend seen since mid-July. Futures later trimmed gains but still widened their premium over December futures.
Roasters’ bids are showing up as they take advantage of the price drop to fix open physical volumes, according to Tomas Araujo, a trading associate at StoneX.
“The rest of the week will be interesting as any spot shorts caught off guard” will need to consider closing out their positions, he said. While temperatures in some coffee producing areas in Brazil are expected to drop close to 5C (41F), the “risk of frost is minimal and will be isolated.”
Traders also believe the news of colder Brazilian weather spooked investors and forced some to cover short positions, even though meteorologists have dismissed risks for frosts that could damage coffee trees.
“With cooler temps forecast in Brazil for next week (albeit on an ever-changing forecast), it would take a brave trader to initiate a fresh short here,” Alex Boughton, a soft commodities broker at Sucden Financial, wrote in a Tuesday note.
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