NEW CROP FLOWING
The S&P500 12% gain in April marked the best performance since January 2017, but even more remarkable is the 29.5% bounce from March 23rd low, 2,191.86 – thanks to the flood of money poured out by central banks around the world.
Gradually some American states and European countries are beginning to come out of complete isolation after lower COVID-19 contamination and death numbers, but many remain cautious and anxious on the containment of the pandemic and the speed of the economic recovery.
Antiviral Remdesivir (from pharmaceutical company Gilead Sciences) was approved by the FDA for emergency use to treat patients with COVID-19 who are in severe conditions. The study carried out by the laboratory showed a reduction in the recovery time by 31% and a decreased fatality rate from 11% to 8%.
In Brazil, where the virus has been spreading quickly, Jair Bolsonaro is giving government jobs to a block of parties that will help him gain support not to get impeached and eventually to get legislation passed quicker. His Finance Minister was “guaranteed” in the post, dissipating market’s worry, but the president keeps providing support in controversial demonstrations by its legion of followers.
The CRB has risen in the past five days, led by gains in energy raw-materials (crude oil rallied 63.85%), lean hogs and sugar – all with double-digit percentage increases.
Arabica prices in New York are virtually unchanged from last Monday (after testing mid-March support) and robusta is trading at 1,200 dollars per ton again.
Fundamental Focus
The beginning of the crop in Brazil, slightly anticipated, is improving the flow of new coffee, but internal prices have suffered with the “C” trading lower last week and the BRL coming off the lows – well, the USD is still near R$ 5.50 anyway.
Demand overall is not great in the midst of the uncertainty about the consumer behavior in the second half of the year and that could somehow put a downside pressure on prices as the farmers who were not able to trade much on a forward basis might be more willing sellers in the next two months or so.
Also, considering the conversion of the “C” contract into cents of Real per pound, it is hovering near R$ 6, a bit distant from the R$ 6.4980 of March 25th, but quite far away from the R$ 4.2230 cents of February 5th.
Comparing it to May 8th, 2019, when Brazil was entering a smaller crop than the current one, this “indicator” is nearly 70% higher – it was at R$ 347.82 cents per pound then, with NY trading at US$ 88.55 cents per pound and the dollar at R$ 3.9279.
This is one of the bears’ arguments along with their very grim prospect of falling demand.
Some recent data released by leading statistic institutes are indicating a slower pace of disappearance at-home, which the losses of out-of-home are not compensated for – every week is a new week and the analysis must remain fluid.
As we see the economies opening up we will have a better picture, and while the likelihood of demand diminishing in Brazil, for instance, might be higher, if unemployment number remains high for long in the US, there could be a negative overall outcome for the S&D.
On the other hand, coffee prices are not at levels that encourage the growth in production for most of the countries in LATAM and looking at the sea of money printed Worldwide, risky assets could attract buying.
Brazilian producers are leaders on coffee farming though and among other reasons (like the Real poor performance) one can point at the portion of its record crop that has already been sold (on the forwards), which it is at a new high also – allowing for great care.
The structure shall continue to reflect a less worrisome scenario of disruption on the supply chain more than a flat-price debacle, at least for now.
Technical Focus
July20 contract in NY tested the 10day moving average today but could not sustain and is in a dangerous point to eventually test 103.80. Piercing the level will then make other downside objectives 101.40, 99.70, 95.80 and 93.40. On the upside 108.10, 112.15, 114 and 117.50. London resistance levels for July20 are 1215, 1286 and 1310 and support ones are at 1140, and 1109 dollars per ton.
Stay safe and healthy!!
Wishing you a nice week,
Rodrigo Costa
Skype: rodrigoccosta10
WhatsApp: +1 646 468 7091