Fiscal stimulus from all major economies and central banks increasing their balance-sheets towards unprecedented levels to avoid a depression have sparked equity markets sharply higher in the past five days.

In the United States 3.283 million citizens applied for unemployment benefits on the week of March 16th, an all-time record, indicating how serious the economic crisis can become if the quarantine lasts too long. For now, though, the growth in the number of COVID-19 cases in the US, Italy, Spain and Germany (among several others) does not provide another safe alternative.

The greenback eased off in front of the Senate approving a 2 trillion-dollar rescue package, but as social distancing guidelines were extended until the end of April by President Trump commodity indices slid again. 

New York coffee traded briefly above US$ 130 cents per pound driven by the structure tightening even further last Thursday and then it sank back settling today 3 cents below our previous report.

Fundamental Focus

The currencies of the two main producers of arabica are near their historic lows – traded recently – in part due to invertor’s lack of appetite on emerging markets in face the risk of the pandemic hurting more their economies and put more stress on an already stressed infrastructure.

The volatility of the “C” contract (of the futures alone and even more of the spreads) is in line with the anxiety of most agents who are concerned with the flow being limited of coffee leaving the farms and passing through the ports and at the same time looking at the strong demand coming from consumers at groceries.

Replacement levels in Brazil got slightly better with the recent performance of the terminal coupled with the devaluation of the BRL that took New York to the highest level ever in Reais, R$ 649.80 per pound.

The amount of coffee traded on the Brazilian internal market was quite good not only for current crop – previously perceived by some to be sold out, but once again demonstrating that higher prices make it “appear”, encouraging “destocking” – but also for forward businesses, like 20/21 and 21/22 crop.

Exporters are trying to facilitate the flow out of the country, but it is not easy to address the availability of containers, as well as booking space on liners on the nearby, at the same time that the inversion of the spreads does not make the basis attractive enough for buyers who are not in the segment most benefited at the moment to participate much.

On the producer side, many growers are complaining about the small number of companies opened for business, impacted either by employees being quarantined or, apparently in some cases, by lower availability of credit lines – anyway overall it is diminishing liquidity locally.

For mild beans the differentials remain firm independently of the move of the “C” contract and ICE stocks were drawdown today below 2 million bags for the first time since April 24th, 2018.

May/July wild swings shall continue as we get closer to FND, influencing the high volatility on the outright.

Technical Focus

July20 contract left a gap between 123.25 and 123.70 on Friday, today moving back above the 100day moving average (118.75). Next resistance levels are 124.45 and 129.05 while support ones are at 116.50 and 112.00. London seems unable to overcome the proximity of the arrival of the conilon crop and not even the lower limit on the positioning for May was able to wake up that market. A move above 1273 in July could bring some buying to test 1293 and 1337. On the downside we shall look at 1211, 1197 and 1115 dollars per ton – this market seems like a bargain comparing to other coffees available, no?

I hope everyone is getting adapted to home-office (along with home schooling, kids screaming, dogs barking, significant other yelling, etc, etc, etc).

Stay healthy!!

Wishing you a nice week,

Rodrigo Costa

Skype: rodrigoccosta10

WhatsApp: +1 646 468 7091