ICE RETREATS AND FLIRTS AGAIN WITH PSYCHOLOGICAL LEVEL OF 100 CENTS
Coffee plummets on ICE Futures U.S., pressured by the decline in crude oil and, especially, the advance of Brazil’s 2020 crop. The polar air mass, which sharply lowered temperatures in the Southeast of the country and brought risk to coffee crops, has lost strength and is dissipating, leading to a dismantling of climate protection. This bearish combination made the July 2020 contract sink into negative field, exchanging hands at 101.45 cents on the U.S. exchange, the worst level since October 2019. It is true that arabica recovered later, but even so it closed Wednesday (27) at 102.50 cents. As a result, the July 2020 contract flirts with the dangerous psychological level of 100 cents.
New York arabica coffee is likely to remain vulnerable to financial issues, especially crude oil, CRB, and dollar indexes. The advance of Brazil’s record crop must keep weighing on the fundamental side, keeping the market under negative pressure. The USDA’s attaché projected Brazil’s 20/21 crop at 67.9 million bags (SAFRAS projects 68.10 million bags), confirming a new production record.
The improved external mood, with the reopening of economies and valuation of other assets, can positively influence coffee on ICE. However, gains are likely to remain limited in the face of weak fundamentals, given the pressure of the arrival of the Brazilian crop. A more significant upward movement is linked to a climate scare, with the advance of a polar air mass, but even the weather market, with the winter in Brazil, will likely have a more limited effect because of the net long portfolio held by funds.
Crop transition triggers lows
Domestic prices ended up falling over the past few days, pressured by the sharp decline in the dollar (again moving away from the highs) and weakness on ICE (by flirting with the level of 100 cents). Of course, the advancement of the new Brazilian crop also weighs against prices. The best cups, which exchanged hands over BRL 600 a bag in the physicals, ended up not only moving away from this level, but some descriptions already converge towards the level of BRL 500 a bag. Good cup from the south of Minas is around BRL 525 to 530, and fine cup from Cerrado at BRL 560 to 565 in the physicals. In Mogiana fine cup is already pegged between BRL 540 and 545 a bag.
Physical prices fell proportionally less than those of future crops, particularly the positions for September 2020. The scarcity of physical supply explains this movement of appreciation in the physicals. The difference between good cup from southern Minas for immediate shipment and for September 2020 (delivery a few months ahead) is currently at BRL 15.00. It was at BRL 50 a bag recently.
This negative spread in the future price curve is justified by the crop transition period. The trend is for an approach towards the future price, but it is weak now due to the harvest progress and growing supply of new coffee in the market.
Rio coffee in Matas de Minas region also retreated with the progress of the harvest and emergence of new coffee on the market. Rio cup with 20% of defects is indicated at BRL 375 per bag in the physicals, down BRL 15 per bag from the end of last week. Conillon also dropped, following the dollar’s low. So, type 7 from Espírito Santo is trading between BRL 345 and 350 a bag in Vitória, down BRL 5 a bag from last week.