End Of The Year Standstill

The market closed this past Friday, March 23 at 164.40 cents. Last Friday, the market had closed at 158.15 cents.

During the short term, the market was a bit oversold, so this market rally is technical. NY needs to stay above 174 cents in order to eventually reach the levels of 194/195 cents, but this week the market was unable to sustain levels above the initial range.

ICE(European ports) coffee certification in NY continues growing at a good pace, with stocks approaching 750,000 bags, with a considerable volume still of more than 400,000 bags pending certification. The differences in origin (including Brazil) continue to show a loss in certifying coffees (the exchange being the buyer). I cannot know exactly the reason or the strategy, but we can assume that part is financing (coffee is considered a highly liquid asset and that banks accept as collateral), especially now with a sharp rise in interest rates.

Also going unnoticed this week, GCA stocks (American ports) had a small increase of 70 thousand bags to 6.39 million bags. This is something I have been mentioning to follow as we are in the winter season for the Northern hemisphere and American markets. We would assume that the necessity to roast would increase as this would be entering peak season for coffee lovers. We are almost 1 million bags over 2021 levels and right above the 5-year average at around 6.28mm bags

From the point of view of the position of short-term funds and speculators, shipments from Brazil and the increase in certifications at the moment, show that there is no reason for them to change their positions. Including, perhaps the doubts still about the real number of the Brazilian harvest, added to some doubts about the drop or not in demand, still hold them back from increasing the short position. Conab shared its coffee harvest numbers at 50 million bags

It is good to remember that, in 2018, these funds and specs reached 100,000 lots sold. They could still double the current short position and push this market to close to 100 cents. Coffee is still undervalued compared to other commodities, between December and January index funds should rebalance their positions (in theory buying more coffee). They already have a long position close to 30,000 lots, so the percentage needed might not be enough for a big move in the market.

The domestic market remains very illiquid, and the spreads against NY are very tight. According to traders, the demand is average, but with a lot of resistance to catch current differentials. Differentials narrowed expressively and traders aren't able to negotiate freely with buyers simply because farmers are holding back to sell at current levels. Currently it has been a hassle to negotiate deals with importers and distribuitors at current levels because they are trying to purchase below current market values. (Trying to reach levels of early October)

In Central America, on average, we have 15-20% harvested, a little late due to the rains, unlike Vietnam, which remains firm with the trend of finishing the harvest around 28 million bags before the end of January.

Brazil is exporting less and less robusta. by The end of the year Brazil is poised to export 1.5 million bags vs 3.7 million in 2021