Equity markets rebounded today erasing last week’s losses after COVID-19 death tolls during the weekend signaled hitting a plateau in some US areas as well as in Spain and other highly affected regions in Italy.
Although it is premature for too much optimism it is at least some needed good news in the midst of the increasing number of cases around the globe – partially due to many countries being testing the population more broadly.
In the US the March non-farm payrolls decreased for the first time in more than nine years, with the unemployment rate jumping to 4.4%, a 0.9% increase – the highest since January 1975.
Initial job-claims had also jumped to a new record high of 6.6 million claims on the week of March 20th, adding to a total of 10 million people applying for the benefit in only a fortnight.
The extension of social-distancing in many countries still worries the overall impact in the economy, but the rescue packages created along with monetary easing policies for now are perceived as suffice to bridge the expected gap until we are back to normal (or the closest possible).
The CRB index moved north in the past five days led by the 31.65% rally of crude oil and 19.49% gain of gasoline, as the market tries to anticipate production cuts by Russia and OPEP.
Coffee in New York has been volatile heavily influenced by the May/July spread with outright prices allowing business to take place where there is coffee to be traded, with the focus being on the short-term.
Brazilian differentials weakened with the combination of the terminal and the exchange rate, allowing prices in the physical market to break the R$ 600.00 per bag in excellent timing given the proximity of the harvest.
Conilon producing regions have already started harvesting, but most will gain speed from the middle of April onwards. For Arabica, the expectation is that Zona da Mata starts at early May, along with some low areas, and then more generally in the country through the course of the second half of next month.
Much has been discussed among the participants about the impact of the coronavirus in picking coffee in Brazil as the country has limited the circulation of people.
Bloomberg released an article today with some warning the danger that coffee will stay longer than ideal in the tree (of fall in the ground), impairing the quality due to a possible shortage of labor.
Brazil is a large country, with several local authorities passing mixed messages to the population – partially helped by the “low” number of cases on COVID-19, a lot due to lack of testing – therefore it is hard to make a strong case against workers in need to earn money when the state cannot provide enough.
In the Espírito Santo state, for instance, the government has issued a booklet with guidelines on how to prevent the risk of getting contaminated by the new flu by those who will work on the harvest.
There is also the question on how much of the farms are mechanized.
According to some analysts, about 50% to 60% of arabica beans (considering the total volume) is harvested with machines, requiring few workers – mostly regular (fixed) employees.
As for conilon is concerned, even where a combine harvester is used the need of workers is not shaved as much, meaning that the farmers still need to hire people to help picking up coffee.
Last, but not least, president Bolsonaro has been pressuring his Health Secretary to ease off social distancing and it seems like it will soon announce some measures to allow people to gradually go back to work after Easter.
We will keep everyone posted.
An important point to be mentioned is that we are near the new crop and the availability of coffee has not decreased enough to cause a squeeze in Brazil, as it will be evidenced by exports in March and April – which will corroborate with our January report on carry-over and crop forecasts.
On the demand side, the roasters remain active in the spot market, replenishing supermarket shelves to serve consumers who are drinking more coffee in their homes (or picking up more on drive-through – I have seen huge lines on my neighborhood).
Looking back to the terminal, tomorrow (Tuesday) the index funds will start rolling out their May contracts forward, likely weakening the spread and putting some pressure on outright prices.
It might be only temporary though as coffee has been proving resilient and eventually it will not lose much growth of consumption, overall speaking.
Non-commercials have reduced their positions in the market to levels not seen in several years. As per the last COT report, their gross-long at 21,161 lots is the smallest since October 31st, 2012 and the gross-short at 12,321 is the lowest since November 28th, 2014. With the firmer structure, being short coffee is not as attractive and with plenty of money on the system it could not pay to bet on the downside. As for the long side, one might be waiting for risk-assets to gain traction – post coronavirus – to start adding on the buy side. NY July20 contract has support at 115.50 and 110.90 while resistance is at 120.00 and US$ 122.85 cts/lb. London levels to be observed are 1221, 1770 on the downside and 1264 and 1332 dollars per ton on the upside.
Stay safe and healthy!!
Wishing you a nice week,
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