SUPPLY & DEMAND MISMATCH
Equity markets rallied strongly today erasing last week’s losses after positive news on the prospect of a new vaccine for COVID-19.
FED chairman remarks assuring the commitment of the entity to use a full range of tools to support the economy helped to the enthusiasm, even though Jerome Powell said that the recovery could stretch until the end of 2021.
The dollar index fell below 100 and the CRB managed to close at the highest level since April 9th led by energy raw-materials, with crude oil up 35.75%, heating oil 17.84% and gasoline 12.80% – all in only five days.
Coffee in NY lost 2.98% and in London it is just a shade lower in a week.
Fundamental Focus
Exports out of Brazil remain on the high side with April totaling 3,348,601 bags, while March figure was revised upwards to 3,487,845 bags. It seems like the country will ship more than 40 million bags for the second consecutive crop year – quite impressive!
The data contradicts those who had long believed in limited availability of coffee internally in Brazil and once again it proves that price increase uncovers the beans stored on the sheds.
Also, many might be forced to revise previous crop numbers and/or carry-over stocks, even if a potential lower internal consumption by the coronavirus is considered.
Speaking of consumption, a presentation done by Euromonitor in partnership with the NCA showed slides predicting a loss of disappearance in the United States in a range from 2.5% to almost 4% in the year and then a slow recovery of consumption.
The impact comes from out of home losses (as expected), not been compensate by at home usage, and if it plays out as forecasted it certainly shall impact prices negatively – even more so if the same happens in Europe.
According to the GCA inventories of green coffee in the US rose by 494,299 bags in April, an increase greater than the five- and ten-years average – around 130 thousand bags – and another discouraging point for the bulls – maybe proving that demand is really cooling down.
Positively we can mention the continuous drawdown of certs, now at 1.79 million bags and the strong differentials for washed arabicas – although the later seems to be more due to lack of offers than strong demand.
As for naturals the basis has gotten quite cheap, also helped by a punctual mismatch between buyers and sellers’ need.
In one side roasters were pro-actively protecting themselves about a possible disruption in the supply chain, given initial threats of strike at ports or a fear on slower flow from the origins because of the pandemic. Therefore, many had anticipated shipments, bought coffee on the spot and FOB for prompt shipments, making sure to have a cushion of inventories, just in case. Now one must see how the consumer behavior unfolds, bearing in mind that the books have some forward purchases – as usual.
On the other hand, Brazil is harvesting its biggest crop ever and even though more than a third of the production might already been sold, there is more selling interest at the moment as the devaluation of the BRL along with NY trading near US$ 110.00 cents/lb converts into relatively good prices locally – even more so if one considers all the turmoil that he markets have gone through in the past months.
Still on the harvest subject, quality-wise the crop so far looks pretty good and we might already see some of the new coffee being exported in May.
The re-opening of several economies will be closely monitored by all of us, not only to understand the new-normal, but more important to help us find safe ways of getting back to work, schools and other activities.
Technical Focus
NY July20 contract first support is at 104.60 then 103.80, 101.40 and 99.55. Resistance levels are at 110.40, 113.30 and 116.15 cts/lb. Robusta levels to be observed are 1201, 1215 and more distant 1265 on the upside, while 1144 and 1121 dollars per ton are key support points.
Stay safe and healthy!!
Wishing you a nice week,
Rodrigo Costa
Skype: rodrigoccosta10
WhatsApp: +1 646 468 7091