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C Market Update – November 19, 2018

After a summer of undeterred collapse reaching just below the $1 mark, the C market spent October rebuilding its configuration with a sharp recovery to $1.2920. Despite our best wishes for the futures benchmark’s health, there is little change in the underlying fundamental news to inspire more upside action. The recent spike in the C market is attributed to speculative trader activity, i.e hedge funds that shorted the market at higher prices took profit by rebuying futures and closing their investments. This buoyancy is already being drained as the C market returned last week to a lower range, trading narrowly between $1.12/ln and $1.18/lb. The drop-off from $1.30/lb took place even while the US dollar weakened, further indicating the weight of the speculative sector in this market.

In the near term, the C market’s resolve will continue to be tested by fundamental news as Brazil’s government agricultural agency CONAB prepares to issue its final production forecast on December 18. Their most recent forecast pegged the 2018/19 crop at 59.9 million bags, 33.2% more than last year, while the USDA forecast reached 63.4 million bags. The record crop expected in Brazil will more than offset a 2.3% forecasted decline in Vietnam, and higher output in Colombia (up 1.5% at 14 million bags), Guatemala (up slightly at 3.45 million bags) and Honduras (up 15% at 8.89 million) will also exert downward pressure on the C market. Despite continued growth in global coffee consumption, there is little expectation for demand to exceed supply with current warehouse surplus stocks and new crop forecasts.

On the technical side, there is short-term relief for prices while trading houses and speculative investors await fundamental news. The mid-band range of $1.12 to $1.18 will need to see a more definitive test of its barriers to re-define market configuration. Although there is potential for the C market to aim for $1.30 again if CONAB’s report reduces its forecast numbers, the sheer volume of overall production in the upcoming harvests leaves all of us eyeing the bottom of the pit.