Good day. Welcome DRWakefield’s Weekly Market Report!
This report touches upon the Arabica and Robusta coffee futures market, currency pairings and news from origin. See our Market Report Terms page for clarity on any terminology in the coffee market report below.
Live Market Data
Coffee Market Report 04/09/2023
This report was written by Hannah Wakefield and covers news from the period Monday 21st August to 1st September 2023.
New York Coffee Market
This report covers the past fortnight due to the Bank Holiday in the UK last Monday we have not yet covered the period from 21st to 24th August.
As you can see from the chart above, the tide began to turn on the recent bearish run in the NY coffee market, and the bulls are making tentative headway. On Monday 21st August the market opened at 150.10 c/lb, which is not only the low of the day, but of the week and even the fortnight. It hit a high of 154.65 c/lb which was largely driven by speculative buying and short covering. The bullish sentiment continued, peaking at 156.25 c/lb on Thursday 24th August, before cooling off and closing the week at 153.15 c/lb. Reports of rainfall in Brazil were the source of the bearish downturn, if regular rain begins to fall this will trigger an early flowering which could mean the next harvest’s crop will be put in a vulnerable position.
In the second week of the reporting period, whilst in the UK we were enjoying the Bank Holiday, the New York opened at 152.50 c/lb and closed just 25cts higher at 152.75 c/lb. Activity was very light, as it has been across most of the summer, trading coffee clearly has not been top of mind for everyone this summer! Activity, however, recovered by Wednesday 31st as many traders were squaring their books for the end of the month, but the bullish drive was also encouraged by a peak of the steady decline of certified stocks, which reached a ten-month low. The final day of the reporting period, Friday 1st September, was another slow day, with many traders absent in the US in anticipation of the Bank Holiday on Monday 4th September for Labour Day when the market will be closed. The market closed out the period on 1st September at 151.90 c/lb, just 1.80 c/lb higher than the open a fortnight beforehand.
Most trading over the reporting period has been driven by funds and speculative moves, rather than the fundamentals. Players are keeping their eyes on the Brazilian weather forecast, now the current harvest is virtually complete, all eyes are on when the first rains will come in Brazil which will determine the next crop – it never ends!
COT & certified stocks
⇧ Open interest increased by 2099 lots to 193,105, with options increasing by 1792 to 216,812.
⇩ Managed money have increased their long by 3930 lots to 28,495 whilst their short increased by 502 lots to 56,385, leaving the Net Short down 3428 lots to 27,890.
⇩ The Commercials dropped their long by 291 lots to 61,770 lots
⇧ The Commercials increased their short by 1634 to 79,495 lots.
⇧ ICE Arabica Coffee warehouse stocks: 6001 bags to 484,738
– ICE Arabica Lots pending grading: 0 as of Friday 1st September.
Currency & Macro Outlook
As you can see from the chart above, both GBP (shown in blue) and EUR (shown in green) have generally trended weaker against USD over the past fortnight, apart from spiking on 30th August where GBP reached 1.272 and EUR 1.092 against the US Dollar. This spike came off the back of US job data released that showed that job openings have slowed down and that unemployment in August jumped to 3.8% from 3.5% in July, meaning the US job market has generally weakened. On top of which the US economy grew less than expected in Q2 of 2023. It was predicted to grow by 2.4% but only managed 2.1%.
However, this move was sharply and effectively reversed. By close of play on 1st September, GBP had fallen to 1.258 and EUR to 1.077. This rebound in Dollar strength was driven by reports that manufacturing and consumption had both risen month on month in the US, continuing a positive trend.
Origin
The Brazilian is nearing completion, with Cooxupe reporting that their harvest was 92% complete on 31st August. Given the near-completion of the harvest, Rabobank have revised their estimates for this year’s crop to 59.5 million bags, and also for the 23-24 crop to 66 million bags. After months of watching the estimates for the 22-23 crop, nerves are easing as the estimates become more and more reliable. However, many traders’ thoughts have already turned to the 23-24 crop, with the promise of a bumper crop on the horizon. Although the coming rainfall in Brazil may affect this. As I mentioned earlier in this report, if rains trigger an early flowering the 23-24 crop will be in a vulnerable position.
Coffee Market Report 21/08/2023
This report was written by James Duncan and covers news from the period Monday 14th August to Friday 18th August 2023.
New York Coffee Market
This week we will be reporting on the December ‘23 (Z) terminal as the first notice day on the 23rd of August fast approaches and most have switched their position – with volume on the September terminal around 51,000 during this period, while December terminal stood at over 140,000.
The December terminal opened at 157.50 c/lb following a gentle bearish run from last week, briefly hitting the weekly high of 158.50 before seeing the largest one-day movement of the week and closing at 152.60. This run continued through most of the week, hitting a low of 147.20 c/lb on Friday before closing out at 150.00 c/lb – marginally higher than Thursday’s close of 149.10.
Most of the movement this week has been attributed to speculative selling driven by technical weakness amid the perspective of surplus supply as demand falls and the Brazil harvest draws to a close. After breaking the support of 155 c/lb early in the week all eyes were on the next support around 145 c/lb, but speculative short covering encouraged by this support holding led to Friday’s slight uptake. The market is still oversold hinting at a possible reversal in the coming weeks.
COT & certified stocks
COT cut off: 15th of August:
⇧ Non-commercials increased their Net Short position by 10,533 to 26,042
⇩ Commercials decreased their Net Short position by 13,748 to 21,159
⇩ ICE Arabica Coffee warehouse stocks: down 7,204 bags to 513,665
– ICE Arabica Lots pending grading: 0 as of Friday 18th August
Origin
With the Bazil harvest over 75% complete, we are beginning to see some more solid estimates for this year’s volume start to come in. Cooxupe, Brazil’s largest coffee cooperative, is expecting almost 6.5 million bags this year an increase of just under 30% from the previous year. It is important to recognise that at least some of this will be due to larger cooperative membership and not down to increased yield alone.
Elsewhere, the Brazil Coffee Export Association (CeCafe) reported exports 2.7 million bags of coffee in July, up 22.3% from July ’22. Interestingly, Arabica exports in this period were only 6.5% higher at 2.06 million while Robusta (often called Conilon in Brazil) were 245.4% higher than last July at 505,153 bags. The report also showed a 16.4% decrease in coffee exports for the calendar year up to July ’23 highlighting the weaker performance earlier in the year. July, however, is the first month in the Brazilian crop year, and year-on-year performance shows a decrease of 20.4% (Jul 22 – Jun 23 vs. Jul 21 – June 22).
Currency & Macro Outlook
The sterling slipped against the USD at the end of last week following data published by the Office for National Statistics (ONS) showing a 1.2% decline in retail sales in July. This has widely been attributed to a wetter than average weather keeping people away from the shops – while online shopping increased during July, but not by enough to drive the overall figures up.
Up until the announcement the sterling had been performing well, hitting a 26-day high against the EUR before a combination of a weakening GBP and strengthening EUR stalled this on Friday, as it was reported headline inflation in the Eurozone halved in the past 9-months to 5.3% in July.
Coffee Market Report 14/08/2023
This report was written by Guus Bremer and covers news from the period Monday 7th August to Friday 11th August 2023.
New York Coffee Market
With a volatility of 890 points, the range of the week was between 156.00 and 164.90 cents per pound. NYC’s front month KCU3 opened 7th August at 161.15 Usc/lb coming off a high of 168.30 the week prior. Further speculative selling by the funds forced the Arabica market down to end the week at 157.80.
The spread curve finally allowing to carry some coffee, and swinging is back to full contango. Liquidity switches to the Z (dec) contract with the First Notice Day approach.
London Coffee Market (Robusta)
When talking robustas, we must not forget about Brazil. If the Robusta market remains this tight, demand can shift to Brazilian robusta (conilons) but also to low-grade Arabicas to compensate. Cecafé (council of Brazil exporters) reported a 22% increase in exports for July. This includes 505k (rough 8500 bags) of conilon shipped underway. If that 505k will be (partly) approved by certified stock, it may help replenish the desperately needed stock that is at a 6-year low.
Could it possibly even end the inverse backwardation structure of the London future terminal months back to carrying (contango)? It’s still a long way until the new crop (Vietnam/Indonesia) kicks in, so I guess the spot and nearby stock will remain very popular for the time being, especially now that so many roasters seemed to have upped the robusta elements in their blends.
COT & certified stocks
⇩ COT cut off 8th of August: Non-commercials decreased their Net Short position by 1,553 to 15,509
⇩ ICE Arabica Coffee warehouse stocks: 520,869 bags. (-7,073 bags from last Friday)
⇧ ICE Arabica Lots pending grading: 1,299 bags
On Thursday 10th August the ICE-monitored arabica coffee inventories dropped to an 8-1/2 month low of 520,869 bags with 1,299 bags up for approval. Honduras and Brazil have the highest volume of that with 337,760 and 157,467 60kg bags respectively.
The Long Specs Liquidate on Arabica & add on Robusta. Managed Money longs liquidating 1.7k lots and shorts adding a small 0.4k lots. Commercials closed hedges on both sides (Trade -4.3k shorts / Roaster -3.2k longs). The Roasters seem willing to wait for prices to fall and the trade is holding back their selling unless prices rise. Commercials seem to have space to add on both sides, as they are hovering around 8-year lows.
Origin
For the second half of 2023, there is a higher global coffee production forecast. The weaker differentials are reflecting this expectation.
We see a balanced supply and demand in Colombia, where differentials have fallen below the 10-year average coming of excessive price offerings last year. Those high price offers had forced some roasters to stay away from Colombian coffee, despite its favourable quality profiles. Now after the sharp drop, the demand is slowly building back for the new main crop starting in October/November. The local market in Colombia is also not over-sold anymore, as we can see from their July imports that fell 50% YoY.
In Brazil, the crop conditions are supposed to be good (60mln bags +). Combined with a USD/BRL of 4.90+ you would expect softening diffs. Dry conditions have accelerated the country’s coffee harvest.
Cooxupe reported that 74.9% of Brazil’s arabica is completed as of 4th August, ahead of the 71.7% completed at the same time last year, over 40% of which is now sold.
An increase in Brazil’s coffee exports is negative for prices. Cecafe reported Thursday that Brazil’s July green coffee exports rose +22% YoY to 2.7 mln bags.
Honduras’ coffee exports rose +63% YoY in July to 828,499 bags. Whereas Colombian exports fell -17% YoY to 846,000 bags.
In Peru, conditions are much better than last year. In the north, harvest is advanced to 60% on average with the lower zone (<1300 m) finished, the middle zone (1300-1600m halfway and higher altitude (>1600 m) starting It is noteworthy that over 35% of the harvest has already been sold.
Currency & Macro Outlook
The Consumer Price Index (CPI) inflation figures are important to look at in macro developments as it correlates with agricultural futures like Coffee. The effect ripples through commodity markets via Fed interest rate projections, the direction of the dollar, and the overall risk-on/risk-off vibe.
Higher consumer inflation (e.g., 3.5% y/y) = Hawkish Fed = USD up = Agriculture futures down. On Thursday 3rd August the July U.S. CPI Inflation came out at 3.2% in line with expectation.
Physical coffee traders keep a close eye on those interest rates since it is the base for their stocks and customer financing. A small majority of economists believe that the European Central Bank will pause its more than a year-long rate hiking cycle in September but there could be a further rise in rates towards the end of the year as inflation remains sticky.
FX Data
Coffee Market Report 07/08/2023
This report was written by Mantvydas Trainavicius and covers news from the period Monday 31st July to Friday 4th August.
New York Coffee Market
In the last week of July, the NYC market followed a bearish trend until the bulls showed up taking the market from 157.90 to 166.00 on a single day of trading and closed at 164.65. It continued to climb up to a weekly high of 168.30 on the 3rd of August and closed the trading week at 161.35 on the 4th. The trading range spanned 157.90 to 168.30. The market’s end-of-week decline had an impact on the Brazilian Real (BRL), causing its decline and bringing origin hedging back into action.
COT & certified stocks
⇩ COT cut off 25th of July: Non-commercials decreased their Net Short position by 914 to 13,956.
⇩ ICE Arabica Coffee warehouse stocks: 527,942 bags. (- 810 bags from last Friday)
– ICE Arabica Lots pending grading: 0
Origin
Differentials did not improve in Brazil. Although the market rallied, BRL weakened at the start of the week but has now reversed towards the upside. Harvest pace in Brazil 2023: 82% – Arabica, 100% Conillon. Region wise: Sul de Minas 80%, Zona de Mata 87%, Cerrado 82%, Sao Paulo 85%, Bahia 100%, Espirito Santo 100%.
Brazil Central Bank cut interest rates by 50bp and signalized another cut of the same magnitude for next month’s meeting. The cut was higher than expected, resulting in a weaker BRL moving from 4.80ish to almost 4.90, which is distant from the recent 4.70.
Weather in Brazil on average is drier, and much warmer during the days. July updated shipments from Brazil are 2.865.177 bags (Cecafe).
Currency & Macro Outlook
The Bank of England hiked its key interest rates for the 14th time consecutively on Thursday 3rd of August 2023 by 25 bps to a 15-year peak of 5.25% and signalled that the borrowing costs were likely to stay high for some time. Governor Andrew Bailey said that the BOE predicts the economy to grow minimally in the coming years.
The slowdown in Eurozone business activity worsened more than initially expected in July as the decline in the manufacturing sector was accompanied by a fall in the dominant services industry in the economy.
Thursday 3rd of August 2023 showed USD strengthening vs EUR and GBP but not for long as recovery started immediately once the lows of the week had been hit.
FX Data
