Coffee loses supports and changes behavior on ICE US

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At the beginning of the year, international coffee prices were expected to recover. Thus, the coffee market would finally be able to get off the ropes, after being beaten practically throughout the year 2020. The more positive scenario was based on the losses of Brazil’s 2021 crop and a deficit in the global supply, as well as on the promise of the resumption of world activity in the post-COVID period.

The beginning was very interesting, confirming expectations. So much so that New York arabica, encouraged by a strong financial contribution of funds, even broke through the level of 140 cents. However, coffee did not sustain the bullish wave and ended up retreating. While falling, it lost the level of 130 cents, with the July/21 position closing the month of March at 125 cents, with an accumulated devaluation of more than 10%. Losses in the first quarter of the year, on the other hand, exceed 5.1%.

But what happened to cause that change? Fundamentals have not changed so much, since forecasts still indicate losses in Brazil’s 2021 crop and a deficit in the global supply. The main change is linked to the global financial market. The price of commodities (CRB index) did not confirm the positive reading, leading to the exit of funds. Part of it is correction because of the exaggerated optimism for 2021. The fact is that the cases of COVID-19 remain high, despite the advance of immunization, which, of course, leads to a revision in the GDP growth projections for 2021, moving the asset prices downwards.

And another fact is the rise in the dollar. The US currency gained value against other currencies, especially the emerging ones. The DXY, which even operated below 90 points, is currently above 93 points. And the high dollar plays against commodities prices. Coffee, given the vulnerability, ended up weakening along with the CRB and DXY indices.

On the fundamental side, there was the weight from the proximity of the Brazilian crop, with the conillon harvest taking shape as of April, as well as the more favorable climate for arabica graining, which helps to alleviate some of the tension with Brazil’s lower supply this year.

In any case, the coffee market remains vulnerable to financial volatility. It is important that it sustains the level of 125 cents, as this would bring strength to reach 130 cents, giving rise to the bullish reconstruction movement. The arabica crop losses in Brazil (-30%) are a supportive factor. On the other hand, the negative distance from the level of 125 cents puts the level 120 cents on the windshield, and with it, the confirmation of the dismantling of the upward movement. The pressuring factor could be the high dollar and the more troublesome economic environment.