Cold in Brazil sparks prices higher
The first half of 2019 had major stock indices rallying two-digits (in percentage) across the globe, with the Nasdaq’s leading the rise with 20.34% gains – more than three percentage points above most other US and European indices.
The CRB commodity index ended the six-month period advancing 6.6% with gasoline and crude leading, up 46.79% and 30.35% respectively, while natural gas and orange juice slid 20%, the worst performers among six raw materials that have fallen (out of the nineteen that are part of the basket).
Last week the markets were in waiting mode for the result of the meeting between Donald Trump and Xi Jinping and the trade-war truce agreed on Saturday provoked a rally on risky assets during today’s morning (Monday), when the Dow and the S&P500 reached new historical highs – before manufacturing activity showed slow growth.
The US dollar, which was holding slightly above the recent lows, had a steep move up today after the talks with US and China as it gives the Fed more time to eventually cut interest rates.
For the Brazilian Real we could see a limitation on the gains against the greenback even if the pension reform is approved by the congress before the lawmakers go on vacation.
Coffee in New York has breached major resistance in the last five days attracting more fund to the buy side, making a new high for the year (considering second continuous position).
London stayed a little behind, though it has also appreciated and arbitrage between the two varieties of coffee widened to US$ 44 cents per pound.
Fundamental Focus
The rally at the beginning of last week started with prognosis of cold weather in Brazil for the second weekend of July, precisely on 6th, even though two of the most followed weather forecasters are not warning for frost risk to the main Brazilian producing regions.
Producers that were taking advantage of the strength of the terminal to trade their beans have diminished the rush to sell after the rumors of the cold front, allowing the market to gain more upside momentum.
At the peak of the harvest in Brazil this rally is very welcomed as according to the news agency Safras & Mercados 54% of crop has been harvested, being 71% for conilon and 47% for arabica.
Differentials for replacement were getting slightly more discounted, but it was punctual and with farmers raising their asking prices the basis for international buyers has not improved much.
For mild coffees and robusta the diffs have not also moved much.
Volumes on for “C” today was good and so was the volatility, but on the past sessions one would have expected better volumes given the swings we saw.
The market shall remain volatile and dangerous to move to either side influenced by the weather but also impacted by the macro as we saw today most commodities rallying more than 2% in the intraday to then erase the gains at the last part of the session.
Commercial players have been cautious in jumping in front of a technically positive chart with a cold front approaching Brazil and likely many bears have already got hurt trying to anticipate selling at last week’s highs – being stopped today?
Natural buyers (such as roasters, for example) apparently would not be in a rush to buy as their coverage level is perceived to be comfortable.
High volatility and doubts regarding how long the market will find support for prices present as a good opportunity for producers to sell part of their coffee, both available lots and future crops.
Technical Focus
September contract in NY left a gap today (111.50 to 111.55 – it almost closed it at one point) but it failed to settle above the opening and might trigger some profit taking after rallying US$ 14.75 cents per pound in nine sessions. First support level is at 108.60, followed then by 103.00, 100.15, 98.65 and 96.25. Resistance is at today’s high, 114.10, then 115.65, 117.15 and 121.70. London breaching 1489 might test 1511 and 1557, while on the downside we shall pay attention at 1453, 1427, 1411 and 1356 dollars/ton.
There will be no report in the next two weeks
Happy 4th of July and have a nice month everyone.
Kind regards,
Rodrigo Costa
Skype: rodrigoccosta10
WhatsApp: +1 646 468 7091