Since the last market report on December 2, the Federal Reserve raised interest rates a quarter of a percent, the US dollar stalled its rising value and Italians voted no on constitutional reform. Despite a perceived increase in global volatility overall, US stocks continue to rally on the expectation of looser regulation and higher infrastructure spending in the upcoming Trump administration. In coffee related news, the USDA forecasted an increase of global coffee production of 3.7 million bags in 2016/17 and expects consumption to reach 153.3 million bags versus production of 156.6 million bags. Less rain and higher temperatures are expected in Brazil as summer begins in earnest and concerns for Robusta availability for domestic consumption sparked discussions of allowing green coffee imports to Brazil. Happy Monday.
From a technical standpoint, the C market finally quit digging towards zero as pricing found support just under $1.40/lb. Since falling from a high of $1.7955 on November 8, the C market plunked down to $1.3875 and spent the last week treading water between $1.40 and $1.45. Macro-economic factors are at the heart of the last month and a half of trading activity: US election results bolstered stocks and caused the US dollar to firm up, which in turn forced the C market lower until the Federal Reserve interest rate hike gave pause to this prolonged descent and now coffee pricing bumps along in a lull. Today’s publication from the USDA could push the C market back down though the forecasted oversupply is not novel news and the market is unlikely to make a decisive move without guidance from the US dollar. The daily chart above helps illustrate how limited the range has been since December 6th.
The market’s performance in the last two weeks keeps pricing below the 5-year average level of $1.50/lb and highlights the C’s famed volatility. While futures pricing may potentially dip lower on account of macroeconomic news, market participants appear to be waiting on concrete production numbers rather than forecasts to dictate direction and barring further catalysts, the market may simply tread water in this range. As a green buyer, I would use this time to lock in pricing on coffees that are convincing on the cupping table and keep an eye on the market for its next move.