"At some point the differentials got cheap enough to justify doing that," said Ernesto Alvarez, chief executive of COEX Coffee Group in Miami.
"People wanted to get rid of coffee and prices are good so people are selling what they have."
With the exception of one day, certified ICE arabica stocks climbed every day in the month of July, jumping by 143,523 bags to 1,765,415 bags, the highest level since October 2010. This is the first time stocks have risen in July since 2008, ICE Futures U.S. data showed.
"It's situational. There was no demand for that coffee at that time so people began to lower their differentials and people began to tender it," Alvarez said.
Most of the newly certified stock came from Honduras, Central America's biggest coffee grower, which had about 69,500 bags certified in July, while more than 66,000 bags of Mexican beans passed the grading process.
"The guys who do this, they don't necessarily put up coffee to make money commercially," Alvarez said, referring to the importers who have the coffee certified.
"Generally what they do is, they will certify it and roll it, and in the switches, in the carry, is where they make their money back."
Dealers often roll their positions on the futures market, from a nearby contract ahead of its first notice day for delivery, into the next contract. The switch is the price difference between two futures contracts. Deferred contracts of arabica futures are typically more expensive than the spot contract.
Of the ICE Futures U.S. licensed warehouses in the United States and Europe, those in Antwerp were currently holding the biggest allotment of arabica beans at 929,013 bags by the end of July, up nearly 10 percent from the month prior. This is more than three times what's being held in New York, the second biggest holder of certified stock, ICE data showed.
"One thing that helped Antwerp grow was it had favorable shipping rates. At one point ... it would be cheaper for somebody to send their coffee (from Central America) to Antwerp," said one U.S. importer.
"If I put coffee into Antwerp, load-in fees and all of the other fees were paid by the guy who took them out and not by the guy who put them in."
The coffee that was certified in July is from the current crop, or possibly older, as most origins that can currently deliver to the board will not begin to harvest their new crops for at least a couple months, importers said.
The higher influx of certified beans to Antwerp makes sense to Alvarez, who said that older beans are what is used in the decaffeinating process.
"The demand for old coffee is mostly in Europe for decaffeinating, Alvarez said.
Source: Reuters
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