Coffee

Market Watch: 4/19/2016

March 18, 2015

Good day.

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; a) many people may have underestimated the coffee stock inventory in the hands of Brazilian exporters (which enabled them to ship very good quantities of coffee during the drought months of 2014) and b) 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 and 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, often mimicking 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”, which would imply a correction of the recent decline.

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

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.

Best to all,

Fred Schoenhut
Royal Coffee New York, Inc.

*The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether trading is a suitable investment. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.

Anthony Chango