Coffee in BRL at may 2017 levels
World stock-indexes have had big swings in the past five sessions, responding to the never ending back and forth messages of Trump on the trade-war with China as well as negative data from Germany and the brief inversion of the yield curve in the US and in the UK that happened last week – for the first time since 2008 and 2007, respectively.
The US-president has postponed the tariffs on some products from China, mostly electronics, with his director of trading and manufacturing saying that the move was a Christmas gift to the nation – not by coincidence the suspension ends on December 15th.
The uncertainties caused by the impulsive decisions of the US president do not help companies in their strategic planning, and investors at the same time expect support from governments with more stimulus – just like Germany said it is preparing fiscal measures to avoid a recession.
Emerging markets are feeling the pain not only due to eventually further devaluations of the Chinese currency, but also hampered by the loss of autonomy of an Indian state (which creates friction with Pakistan), protests against Putin in Russia, and in Brazil due to the risk of contamination by Argentina’s political turmoil and by Bolsonaro’s way of “governing”.
In such a background, the US dollar traded at R$ 4.05, the weakest level for the Brazilian currency since May last year, pushing coffee exchanges down, with the “C” converted into the Brazilian currency hitting the levels also from May 2017.
Fundamental Focus
The price fall of the terminal basically takes the December19 contract to the September19 contract levels, as the latter will commence the delivery period this Thursday. It is the contango playing its role and paying bears an interest rate that is comfortable enough not to provoke a reversal of their position, especially with the perception of satisfactory availability for the current deficit year.
In this matter, GCA stocks in the United States rose for the fourth consecutive month, summing a total of 7,099,175 bags at the end of July – the biggest since September 2017.
Differentials from virtually all origins remain firm, starting with Brazil, passing through Colombia and at records in Vietnam. Those who have learned to look at the basis as a strong indicator for the futures markets have already adapted some time ago, but I would think that the strength of diffs shall limit losses of the market at a certain point.
The “confidence” of some bulls that New York would not make a new low is now being undermined by a turbulent macroeconomic environment and the potential of funds adding on their short book.
On the other hand, commercials might be stepping in (the COT did not give us a clue due to rolling period), showing interest on the flat-price and as many are (preparing to or) getting back from vacation, demand on the physical could surge from September onwards, providing a better support overall.
In Brazil pictures of flowering in parts of the coffee-belt are being circulated, and even though it was not blossoming everywhere it starts the clock for monitoring follow-up rains.
The next themes are exactly that: how good the flowerings will be and then the arrival of the crops from Central America and Vietnam. By the end of October, the speculation will build up (even more) on the size of the 20/21 Brazilian harvest.
It seems that Arabica prices will remain on the US$ 90.00 and 115 cents per pound range for some time, unless there is a drastic fundamental change or the US dollar accelerates its appreciation.
Technical Focus
NY Dec19 contract is at shooting distance to its low, 93.70, the first support followed then by 89.00 and 87.60. Resistance levels are at 96.60, 98.70, 100.25, 102.30 and 105.90. In London the November19 contract is holding (for now) above last week’s low, 1287, which if broken could test 1,267 then 1,212 and 1,156 dollars per ton. Resistance is at 1,359 and 1,402.
Wishing you a pleasant week,
Rodrigo Costa
Skype: rodrigoccosta10
WhatsApp: +1 646 468 7091