Industry Updates | July 17, 2023

Over the last two weeks, NYC has found a new range of 164 to 155 cts/lb. Sluggish business, the typically slow summer months, and the fund position moving from net long to net short, all add pressure to a soft #market.?Differentials for all washed #arabicas have now dropped substantially from their highs at the beginning of the year, and business has switched from a sellers’ market to a buyers’ market.?Despite this, the market has remained very cautious and as a result, we believe an uptick in demand for washed arabicas could easily push differentials back up again.?

Last week the National Weather Service projected a 90% chance that El Nino would continue through to March 2024, peaking in December 2023.?This can be seen as a net positive for coffee, with dry conditions expected through the October to March Latin American coffee harvest season. #Arabicacoffee in Brazil is now over 50% completed. The mid-season crop in Colombia is coming to an end.?The crop in Peru is 30+% completed

Brazil

Business has started on a sluggish note with producers holding onto #coffee, looking for better prices.?Weather conditions were cool and wet over the weekend.?The risk of frost remains very negligible.

Colombia

The crop flow in the southern part of the country is now winding down.?In #Tolima the crop has finished, in #Huila, the crop flow is slowing down and in #Narino the crop is now 50% completed.?There is coffee still available but supply and demand are reasonably balanced. Of the coffee available, the quality is stable and differentials remain very attractive. The Colombian main crop will start in September / October and is projected to be very good

Peru

The Northern crop is now 30+% completed with the lower altitude coffees 80% done and the higher altitude coffees starting to flow quickly.??We hear that leaf rust is impacting some areas, but not enough to be of concern.?Weather conditions are good and crop quality arriving at the mills is very good.?So far business has been sluggish for Peru, with some coops selling below market prices to get contracts and financing on the books.?Rolled and defaulted contracts from the prior crop have resulted in liquidity restrictions from the financing entities.?We note the importance of origin partnerships and pricing that works for both sides, but the risks associated with aggressively priced contracts remain.

Market Commentary

Last week NYC traded in a range of 155.50 to 161.70 cts/lb.?Despite technical indicators showing the market oversold, it has struggled to recover the losses of the past month.??A sharp drop this morning appears to be a reaction to a sharp drop in the Brazil real / US dollar exchange rate.?

The September/December inverted spread has softened to 20–35 points.??This move, if it continues will ease the costs associated with carrying spot coffees in North America.?

The COT report showed a further increase of 2.8 K lots in the net short position of the specs to 13.3 K lots.?The commercials reduced their net short position by 5.1 K lots to a net short position of 32.2 lots.??The Index funds reduced their net long position by 2.7 K lots to 45.5 K lots.?

There was little change in the ICE stock numbers with 545 K bags on hand and 2.4 K bags to be graded.

Last week the Brazilian Real strengthened against the US dollar, moving from 4.88 to 4.77 reals to US$.?Then this morning in a sharp move down the real moved from 4.77 to 4.83 v the US$.