RNY Coffee Market Watch: March 2015

Royal New York market watch graph of the Brazilian Real

Your RNY Market Watch, March 2015 update on the coffee market.

What we’re seeing in the coffee market

We’re seeing that the coffee market has retraced nearly 100% of the drought rally of 2014. One could argue the drought rally began in January of 2014 when the month had a range of basically $1.11 to $1.26.

Some obvious conclusions one could draw would be:

  • Many people may have underestimated the coffee stock inventory in the hands of Brazilian exporters.  This enabled them to ship very good quantities of coffee during the drought months of 2014.
  • There is an amazing ability for the coffee tree to recover from a time where many coffee producing areas in Brazil had back to back years of historically very dry and hot weather.

The market has seen the damage that resulted in a lower 2014/2015 crop out of Brazil.  We are within a month or so from the determination of damage to the 2015/2016 crop.

While many producers sold above the values of $2.00 in the summer and fall, once the market broke the technical support area of $1.60 (see below) the fall in prices was fast and drastic.  This often mimicked the fall of the Brazilian Real (pictured above). Producers did not actively follow this price drop.  However, we can see evidence through the Commitment of Traders weekly report that commercial participants of the market clearly added to long positions and also reduced short hedges on the drop in prices. With the momentum of lower prices waning, we now see a market that may have experienced a technical double bottom.  This would imply a correction of the recent decline.

What to keep an eye out for

We believe there are a few things to keep an eye out for in the coming weeks:

  • Brazilian quality on the initial outturns
  • The appetite for the futures speculator to sell more futures at or below the $1.30 level
  • Any governmental intervention in the Brazilian currency will have an impact on coffee prices as well
Royal New York market watch graph

Once again, the objective of this report is to stimulate thought and for our customers.  To continue to think about how they may best put themselves to protect against long term volatility.

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As always, contact us if you’d like to discuss further.