ICE FAILS TO BREAK THROUGH 100-CENT LEVEL AGAIN
Coffee is still struggling to recover the level of 100 cents per pound on ICE Futures U.S. The market remains under strong fundamental pressure. Bullish moves, whenever they happen, are motivated either by financial recovery or some realignment in another market, such as, for example, crude oil, CRB index, or even the dollar. Anyway, the market lacks news.
The Brazilian harvest proceeds without major problems, despite the delay. This reinforces the scenario of global supply slack (10 million bags, according to USDA). There is also no climate risk in the near future. Traders even monitor the entry of a polar air mass into Brazil from next weekend. However, forecasters rule out risks to coffee crops. All of this brings tranquility to supply and continues not only inhibiting bullish attempts but also playing against coffee prices.
The September 2020 contract even shows some reaction, but ended up weakening in the face of the resistance at 100 cents. Thus, it consolidates recent losses and the change of performance downwards. The market feels the fundamental weight of Brazil’s record crop.
Mild coffees appreciated in international market
Mild coffees are still well valued. The description started to gain value in February. Since then, the valuation curve keeps rising. Colombian milds, which until January exchanged hands at around 30 cents above the ICE Futures U.S., is currently trading at +49 cents against the New York benchmark. A similar movement is observed for Central American milds, indicated at 43 cents above the ICE Futures U.S. Little availability of the description explains the firmness of differentials.
The export differential of Brazilian coffee, on the other hand, changed very little, pressured by the arrival of Brazil’s record crop. It is currently trading around 5.75 cents below the ICE Futures U.S. The demand for better coffees, still scarce at the beginning of the harvest, limits greater pressure on differentials. The trend is that, as the supply of new coffee moves forward, this differential grows even more.
Robusta coffee seeks recovery, after losses at the beginning of the year. The forecast of crop losses of Indonesia and Vietnam in the 2020/21 season supports the realignment in differentials and relative appreciation of robusta against arabica. Robusta is trading at -33 cents against the ICE Futures U.S.
FOB Brazil differentials get weaker
Good and fine differentials are weaker, pressured by the advance of the record crop and still very high dollar. Good 14/16, for example, is trading at -22 cents against ICE Futures U.S., below the average for the period, which ranges from -19 to -20 cents. A similar path is also observed in the case of fine cups. These descriptions feel more the pressure of the increasing supply of new coffee in the market and currency devaluation.
Rio cup is in the opposite way and gains relative value, trying to get closer to the coffees of Group 1. Lower physical availability, because up to then the harvest took place with a mostly dry climate, also helps understand the appreciation movement relative to weaker cups. Conillon 13 up also gains value, finding support in the external interest. Little availability in other sources and cheap prices (in dollars) guarantee a good external flow, wiping the internal supply and supporting the prices of the description.