The coffee market experienced some interesting dynamics last week. Here's a breakdown of what's been happening:
📉 Arabica's Attempted Rally:
Arabica coffee attempted a rally early in the week, but it faltered above 150.00. This buying activity seemed to be driven by index-type funds rebalancing their positions for the start of the 4th quarter. Surprisingly, this upswing occurred despite the strength of the USD and the prevailing risk-off sentiment in the macroeconomic landscape. However, this buying enthusiasm lasted for just one day, as downward momentum dominated the rest of the week. The chart currently appears negative, with the next support level at 143.00, marked by the January low.
Support Levels: 143.00, 140.00, 135.60
Resistance Levels: 151.40, 156.85, 164.50
🇧🇷 Local Market Insights:
In Brazil, despite attempted rallies, arabica coffee farmers have been hesitant to sell. Even with currency assistance, significant sales did not materialize this week, and outright price levels are declining. The profit margins for producers are shrinking, which is making them even more reluctant to sell. Interestingly, the local coffee industry has remained relatively quiet, while aggressively promoting prices in supermarkets. Shipping disruptions are occurring due to logistical challenges, with a 'whoever pays a better price gets the shipping space' rule being applied. Conilon coffee, on the other hand, is seeing larger sizes for exports.
🌦️ Weather Conditions:
Brazil witnessed favorable rainfall across all regions, contributing to pin head expansion and triggering another blossom round. Forecasts indicate that these rains are expected to continue in the coming week.
💰 Economy and Politics:
The USD has been trading in the range of 5.02 to 5.20 against the Brazilian Real (BRL). Brazilian interest rates have also experienced a rally, while US bond yields remain prominent in the overall scenario.
🌎 Export Market:
In the export market, only fill-ins were reported, for both conilon and arabica coffee.
📈 Market Influences:
The recent rally in the US dollar index, boosted by higher US government bond yields and robust job growth, has kept commodities, stocks, emerging market currencies, and most risk assets under pressure. Even crude oil, which had been performing well, faced a significant drop this week, unable to maintain its strong performance in the face of global uncertainty.
The Brazilian Real (BRL) has retreated significantly from its gains earlier this year, reaching a low of 5.20. While this might have encouraged more Brazilian coffee producers to sell, terminal prices have fallen even faster.
📊 Market Stats:
ICE arabica certified stocks currently stand at 442,222, while robusta certifications amount to 4,222 lots.
