Louis Dreyfus loosens grip on robusta coffee stocks ahead of contract change

Louis Dreyfus Company has offloaded the bulk of its certified robusta coffee stocks ahead of a rule change that will make it more expensive to carry the coffee forward, industry sources told Reuters. Some 59,270 tonnes of robusta coffee has changed hands in the delivery period that began at the start of this month, Intercontinental Exchange (ICE) data showed on Friday.
This is equivalent to about 76 percent of certified stocks currently held in European warehouses. Industry sources said the bulk of this was tendered on behalf of Louis Dreyfus Company (LDC), signalling that the trade house is unwinding its majority hold on certified stocks.
LDC declined to comment. Ownership of certified robusta stocks is often seen as a strategic move because it can give trade houses a bigger sway over the structure of the futures market. Four industry sources said that the key driver behind LDC's move was a looming change to exchange rules, which will add extra costs to robusta contracts from July, the next delivery period.
"Commercially, it didn't make sense to hold it," one source familiar with the matter told Reuters. "It didn't get to the point where you were even close to breaking even." The rule change is the latest in a series of reforms to the robusta contract in recent years after complaints that the exchange was failing to stop abuses such as steep rent charges and long warehouse loading delays.
Under the new rules, sellers of certified robusta stocks will have to absorb a load-out cost of about $35 a tonne, effectively making contracts from July onward "free on truck". Previously, the buyer had to cover these load-out charges if they wanted to transfer the coffee out of the warehouse.
"With the rule change, somebody is going to have to pay when they re-tender the coffee in July," one of the sources said. "There's going to be a cost associated with that." Since the start of the year, the spot May contract had mostly been at a discount of about $20-$40 relative to the July position, which partly offset the additional costs. However, a drawdown in certified stocks has helped to keep spot prices relatively firm in recent months, limiting further weakening in the spread.