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Mid-year Market Recap

Look up from your cupping table or your roaster’s cooling tray, take a walk outside and you’ll notice that the weather is warm, children are playing outdoors and skies are blue. It’s summer and the year is already halfway over. Somehow amid the flurry of activity with industry events, Central American crop and East African arrivals, we’ve made it to July and it’s time for a recap of market action so far.

 

January/February 2017:

The year started with a bullish lurch, reaching a high of $1.6015 as the dollar weakened and speculators increased their long position prior to any forecasts of Brazilian production. This level is still the highest of the year with February’s news of healthy rainfall in Brazil, record crops in Colombia and Central America instigating a downward trend that would set the C market on a course back to $1.50. The continued rains ameliorated any drought concerns for Brazil and proved to be a weight on C market pricing; February ended over 9 cts/lb lower at $1.4720.

 

March/April 2017:

Most of March and April was spent in a narrow range, with futures oscillating between $1.51 and $1.4995. This period started with a four-day losing streak for the C market, as a 7-year high for the US dollar and historic forecast for Colombian production generated pressure. Technical factors and currency fluctuations continued to nudge the market higher or lower, most markedly on April 19th when speculative repositioning ahead of first notice day sparked a 14.5 cts/lb sell off. The C market finished April in a negative framework with a close of $1.3575, extending its downward trek further.

 

 

May/June 2017:

May for the C market was a consistent test of the $1.30-$1.40 range, with brief highs submitting to continually favorable news for the 2017/18 Brazilian crop. The Brazilian Real also weighed in as political support for President Temer began to wane and the Real experienced extensive devaluation. A generally weak technical framework coupled with new one-year lows and a devaluing Real inspired a record wave of short-selling from the speculative side, culminating in a low of $1.1550/lb on June 22nd. This break in the trend channel was quickly corrected however, and the C market closed out June with a recovery to $1.2570.

 

Current situation as of July 17, 2017:

This month’s trading started with a bit of a dip in pricing, as speculators seized an opportunity to take profit from the bounce back from $1.15/lb. Weather in Brazil continued to show colder though not dangerous temperatures, and last week the C market resorted to inspiration from a firm Brazilian Real and weaker US dollar to post gains and reassert an upward trend with a new support level of $1.30/lb. GCA stocks reported today showed that the total inventory of coffee in reported US warehouses reached 7,294,9445 bags, over 1 million bags more than the 5.9 million five-year average, and there is a general sense of glut in consumer as well producer countries’ warehouses. During the World Coffee Producer’s Forum last week, Colombian representatives cited expectations of even further expansion in production to 18-20 million bags taking into account new growing regions now reachable thanks to the peace agreement, Mexican representatives forecasted reaching 15 million bags in production over the next 15 years due to massive government investment, and Honduras reported exports of 7 million bags in 2016/17 with expectations of further growth as efforts against leaf rust fungus continue to encourage re-planting and fertilizing. In light of the abundance of bearish fundamental news, macroeconomic factors and the influence of currency exchanges will likely be the C market’s greatest source of upward momentum with the underlying possibility of Brazilian weather turning frosty. The short term range for trading looks tentatively set between $1.30lb and $1.40/lb, so green buyers would be well-advised to take advantage of any dips in pricing to book forward Colombian and Peruvian coffees or lock in spot Centrals from recent deliveries.