Market Report

29 April 2025

Last week, coffee futures rallied 27.25 cents from Friday to Friday to end the week just below $4 per pound at $3.9985 basis the now most active July contract. Breaking the psychological threshold for the 3rd time this year would have been very significant, and it seems that the capping of Friday's rally (which went to a high of 410) showed that the market has more interest than buyers above $4. I wrote last week that "I believe that the market is now fairly priced and should continue to find support throughout this week to get back in a $3.60-$3.80 range". My range was overextended by macroeconomic and momentum flows into coffee, as several technical indicators were breached in rapid sequence. On top of this, trading volumes have reduced as it seems that the origin is largely done selling (Central American crop availability is quickly drying up), and the Brazil harvest is still 2 months away. On the other hand, roasters also seemed to have been rather removed, with many fixations having taken place in the early weeks of April. Without industry coming to trade in size, its algorithms trade against other algorithms for the most part. However, my indications suggest that all nearby momentum signals should have already been broken, making the pace of buying slow down. With no additional funds coming in, coffee will continue to rock with the macroeconomic winds a bit. I would not be surprised at another attempt at $4.10 this week before we sell off to $3.90 by the end of the week. 

15 April 2025

Last week, coffee futures fell 9.7 cents/lb to end the week at 353.6 USc’lb. Futures prices came to a low of 340 before finding support. I wrote last week that I expected the market to find support around $3.50 a pound and then bounce higher back into its most recent range. This was broadly the case as the Trump administration in the US walked back some of the most penalizing tariffs of their plan except for China, instead focusing on the broader 10% on everyone tariff. Similarly to past events driven by macroeconomic turmoil, the price action in coffee futures was mostly in line with other markets. For example, the 5-day correlation between Arabica futures and Gold rose to 0.83, which is much higher than the average correlation of the two products of 0.14. Similarly, coffee’s correlation to the equity benchmark S&P 500 rose to 0.49, while the long-term average is 0.05 or broadly uncorrelated. What does this mean? It means that in the last week, coffee has not followed its own fundamentals but rather reacted as part of a larger macroeconomic fear. Speculators reduced their long positions by $2.9 billion this week, bringing them to the lowest exposure since August last year in dollar value terms or January 2024 in terms of the number of lots. However, for coffee broadly the situation has not changed. We are still in an extremely tight stock environment for the moment. On the other hand, roasters seem to have fixed any nearby positions, significantly reducing the chances of a squeeze in the nearby May contract as we approach the delivery period. Nevertheless, I believe that the market is now fairly priced and should continue to find support throughout this week to get back in a $3.60 - $3.80 range. 

8 April 2025

This week, coffee futures prices collapsed -14.25 cents from Friday to Friday to end the week at $3.657 US dollars per pound. I had expected bullish indicators, combined with the upcoming report of large US tariffs coming on April 2nd, to put some fire under the market this week with futures approaching $4. Instead, the tariff announcement made by US President Trump was seen as a hugely negative macroeconomic event for all asset classes, including commodities. Simply put, the market just did not believe the extent of the tariffs that were proposed by the Trump administration would be possible. For coffee specifically, the most affected origins by the tariffs are Vietnam (46%), Indonesia (32%) and Nicaragua (18%). Everything else will be tariffed at 10%, and we still do not have true clarity on whether or not green coffee (or decaf or soluble) coming from Mexico would be subject to a 25% tariff or no tariff. For logistics, any coffee already on the water is safe from tariffs, but any new shipments will be subjected to tariffs. If you have bought coffee from the above three listed origins, please consider talking to your importer about other possible options. Delays and changes of mind are possible, but it seems that a more difficult global trade environment is here to stay. No matter what the outcome of the enforcement of tariffs is in the next week, the market’s selloff was largely attributed to macroeconomic malaise and fears of a global recession brought on by a trade war. For Arabica coffee specifically, we remain in an extremely tight stock environment with absolutely perfect weather needed to overcome a major deficit in supply. Therefore, this week is a good opportunity to add futures coverage for roasters. I expect the market to find support around $3.50 a pound and then bounce higher back into its most recent range. 

1 April 2025

This week, coffee futures prices fell 11.45 US cents per pound to finish at $3.79 US dollars/lb. Last week, I predicted that the market would trade in a $3.95 to $3.80 range as speculators let off the gas one last time. This is exactly what happened, and the pressure on the spread (difference in price between the May and July contract) has weakened from 6.1 cents to 3.55 cents inversion. This is significant, as the degree of inversion typically highlights the seriousness of a nearby deficit in the market, thereby attributing a significant premium to nearby coffee inventories due to the perceived scarcity. Having this degree of scarcity “lessen” as we approach the rolling period from May to July contracts sends a signal to the market that perhaps inventories are ok. However, we have received some very concerning data regarding inventories this month. The European Coffee Federation reported that coffee stocks in major European ports declined 655 thousand bags in February following a 1 million+ bag decline in January. While stocks are still higher than in February and March of last year, the intensity of the decline is the largest in history. Overall, this points to the sign that coffee demand is continuing to exceed expectations and that elevated levels of exports will continue to be needed to satisfy nearby coffee demand. Looking at supermarket sales data in Europe, it seems clear that price increases on the green coffee side have not yet been passed on to the consumer, so it is unlikely that the consumer feels any pressure to buy less coffee than usual. This bullish indicator combined with the upcoming report of large US tariffs coming on April 2nd put some fire under the market this week. Therefore, my prediction is that coffee futures prices will be knocking on the door of $4/lb by the end of this week. 

25 March 2025

Last week, coffee futures basis the most active May contract rose 7 cents from Friday to Friday to end at 391.4 US cents per pound. Last week, I wrote that the negative macroeconomic environment at the moment is perfect for roasters to fix futures and predicted that the market would test below $3.75 by end of the week. I was wrong as the market tried two times last week to break the $3.80 cent threshold before rallying 10 cents above. It seems that there had indeed been some roaster fixations done last week, as the positioning showed 1,736 lots added from the Commercial long side (generally seen to be roasters), while speculators continued to reduce their position. Speculators in the coffee space now hold the smallest position (in lots) of 2025. The last time they held a position this small, in October 2024, the market was trading more than a dollar per pound lower at $2.46. This continues to show the ability of speculators to rotate in and out of their length while getting roasters to pay higher and higher prices as we approach first notice day. I predict this will be the final week of liquidation before speculators will again reengage in the coffee futures and buy up contracts to pressure the roaster to hold fixations until the last minute and pay up. It has worked the last 7 times, why not do it again? I predict that this week, the market will trade in a $3.95 to $3.80 range as speculators let off the gas one last time. The time to fix futures is now!

18 March 2025

In the last 2 weeks, coffee futures oscillated in a range between $3.75 per lb and USD 4.10/lb basis the most active may contract. I wrote two weeks ago that I foresee us heading slightly higher this week to end at USD 3.90/lb given the tariff discussions seem to be colliding in the USA. Now it seems that tariffs once again were postponed another month, giving the market a breather. In terms of positioning, the last six weeks have seen speculator longs reduce their positions by 16,194 lots or $1.2 billion from their peak position in early February. Normally, such a large level of liquidation would warrant a significant downside price action, but over the period of the last 6 weeks futures prices went up 16 cents. This is because roasters, represented by the commercial longs, were forced to buy into March contract expiry, forcing futures to new all-time highs around $4.25. Now that the March contract has expired, roaster fixed positions have once again slipped. The gross commercial long (representing broadly roaster coverage) as of last week stood at 44,750 lots, climbing only slightly from their lows of 41,304 lots set after March futures first notice day. This is broadly the lowest level of coverage since November 2023 and spells disaster for the market come first notice day for the May contract if left as is. Any roaster reading this note should try to secure their May future fixations in the next 2 weeks. The opportunity of a negative macroeconomic environment at the moment is perfect to give the market some pause and allow you to fix your future levels nearby. I predict that the market will try to test below $3.75 by the end of the week.

4 March 2025

This week, coffee futures continued their descent, falling 16.2 US cents per pound to 373.05 cents basis of the most active May contract. Last week, I wrote that the market was expected to continue to let some air out and consolidate around $3.75 USD/lb. This is what happened. This week, several bullish storylines are emerging, largely centered around geopolitical risk regarding the implementation of tariffs by the US on Mexico and Canada (and importantly the risk of counter-tariffs). While the details are still not known, I believe that the biggest risk of tariffs on the coffee supply chain comes to the decaf market in coffee, as the Swiss Water process comes from Canada and the Mountain Water process and MC decaf comes from  Mexico. As a green coffee supplier, Mexico exports around 800k bags to the US annually, which is a little over 20% of Mexican production, but only around 3% of US green coffee imports. I believe that Mexico will find avenues to sell to other origins to substitute for the drop in US demand in case tariffs end up including green coffee. From a soluble perspective, the situation is slightly more complicated, as the US has recently ramped up soluble imports from Mexico and they now comprise roughly 25% of total Soluble imports. The main takeaway for the market is that with stocks at already extremely low levels in the US, another disruption to trade flows in the form of a tariff will likely create panic for nearby supply of some kind, even if the trade flows themselves will eventually resolve, and even make Mexican coffee cheaper and more attractive for certification on the ICE exchange. Therefore, I foresee us heading slightly higher this week to end at $3.90 USD/lb.

25 February 2025

This week, coffee futures collapsed 35.85 cents from Friday to Friday to end at $3.89 USD/lb basis the most active May contract. Last week, I wrote that I expected prices to rally back to the $420 USC/lb range by Wednesday as remaining roasters are left to fix their positions before coming off on Thursday and Friday and ending roughly unchanged. In broad terms, this is what occurred, with Tuesday’s price action hitting a high of 424.50 USD/lb basis the May contract and hitting a high of 434.10. On Wednesday, the pressure from last-minute stuck roaster fixations began to abate, and coffee futures tumbled more than expected. The driver, in part, was a large sell order on the March/May spread, showcasing that one of the market participants willing to take delivery of March futures had changed their mind. With the pressure of having to fix before the first notice day alleviated and one participant not wanting to take delivery at record prices, a vacuum of buyers appeared. This comes even though ICE-certified stocks have been drawing more than expected, with more than 300,000 bags coming out of the largest chunk of inventory (Brazilian coffee in Antwerp) in the last 2 months. The reduction in the stock highlights the sense of nearby tightness in the market and supports the argument that nearby inventories of Brazil are valuable, even if fresh crop Central American coffees are significantly cheaper at the moment. This week, the market is expected to continue to let some air out and consolidate around $3.75 USD/lb as roasters hopefully learn their lesson from the last 5 run ups coming into first notice day and decide to buy/fix some nearby coffee commitments instead of waiting until we come close to the May contract expiry. 

18 February 2025

This week, coffee futures continued their action of extreme volatility, rising 10.7 cents to $4.07 USD/lb basis the most active May contract. Last week, I mentioned the critical issue of roasters needing to buy their fixations before the March contract enters the delivery period, which will occur after this Wednesday. I said that the current fears surrounding tariffs will make the week finish trading around 420 Usc/lb basis the May contract. Indeed, coffee futures prices reached a high of 426.70 basis of the May contract and settled at 425.1 on Thursday. In the last hour of trading on Friday, a vacuum of buyers emerged and the market collapsed on the day from a high of 423.9 to 407.4 by the close. This rapid decline in prices showcases that volatility extremes are not always one-sided but can come simply from buyers wanting to take profit from their positions. A lack of selling interest on the upside can also spell a lack of interest in buying futures at all-time highs once coffee prices begin to fall. When we decompose the positioning of the market, it seems that speculators have been capped recently at around a $7 billion notional investment in coffee futures for the last 3 weeks. Therefore, every time the market goes up, they sell futures (take profit) in order to keep their risk parameters in line. On the roaster side, it seems their positioning is now the largest since August 2024 when the market was nearly $2/lb less. Over the last 3 weeks, 20,855 lots were added at roughly $3.73/lb, highlighting the fact that perhaps roasters are finally paying up for their future fixations and are aware that the risk only increases as we head closer and closer to March's first notice day. Therefore, this week, I expect prices to rally back to the $420 USC/lb range by Wednesday as remaining roasters are left to fix their positions before coming off on Thursday and Friday and ending roughly unchanged. 

11 February 2025

This week, coffee futures blasted off 18.85 cents from Friday to Friday to close at 396.7 basis the now most active May futures contract. Last week, I predicted that new money piling into coffee futures only feeds the panic from the commercial long side and reduce the appetite for sellers. As a result, I saw the natural target to be $4/lb, which we breached on Thursday. Lack of sell-side liquidity is showing up as the main problem, as pent-up roaster fixations are caught chasing a higher market. Intra-day traders are adding to the volatility as well, buying futures contracts on the open, and liquidating their longs during the day when roaster fixation orders come in. Until the first notice day for March futures on February 20th, we are running the risk of pent-up roaster buying. On the speculator side, it seems that specs reduced their positions last week to maintain an overall investment in coffee around $7 billion. This situation mirrors the cocoa market one year ago, where the only provider of sell-side liquidity became the non-commercial participants keeping their position size around the same level in dollar terms. The issue now comes from how high prices will go in the next 10 trading days. My opinion is that new buyer interest above $4 should be reduced somewhat as long as there are no bullish inputs to the market. With the current fears surrounding tariffs, however, this is unlikely so I believe the week will finish with the May contract trading around 420 USC/lb. 

4 February 2025

This week, coffee futures prices basis the most active March contract rose 31.7 cents from Monday to Monday to 380.9 US cents/lb. Last week, I discussed how. Commercial long coverage, risk of trade wars, and extending speculative positioning all pointed to higher market risk. Nevertheless, I had foolishly expected a pullback with coffee futures predicted to pare back and establish a new floor around 340 USc/lb by Friday. Instead, coffee futures made another leg higher spurred on by technical buying in a low liquidity environment. Without any clear resistance, the market is finding itself in increasingly illiquid trading conditions. Farmers are the only natural sellers in this market, but even buying interest for spot coffee has become reduced as cash constraints inhibit exporters from buying larger quantities (or even the same quantities as they had when coffee was around $2/lb). Instead, we are left with roasters continuing to be behind in terms of futures fixation coverage and being forced to buy at higher prices. Commercial longs, a proxy for roasters, extended coverage this week by 3,756 lots or 7.8%, the largest coverage addition since November 26th when prices first rose from $2.81 to above $3. Adding coverage in a market that is 50 cents higher shows how fearful the commercial sector is of the upcoming Index roll and delivery period in the March contract. On top of this, net speculative investment is now the highest in terms of the number of lots since the all-time record was set on November 8th, 2016. From a notional value perspective, speculative investment is over $7 billion, nearly double what it was in November 2016 and $2 billion larger than the previous record set following the Brazil frost in early 2022. All of this new money piling into coffee futures only feeds the panic from the commercial long side and reduces the appetite for sellers. As a result, the natural target for this week is to test the $4/lb threshold certainly before the first notice day in the March futures contract.

28 January 2025

This week, coffee futures prices basis the most active March contract rose 20.4 cents from Friday to Friday to end at 347.55 USc/lb. This is a record price for coffee futures, beating previous records set in the 1970s. Last week, I wrote that issues with liquidity in the contract, roasters being behind in coverage, and the increased volatility coming from the risk of trade wars, would result in us breaking out of the 330-335 USc/lb range. Now it is one week later, and none of the risks to the futures market have abated. Commercial long coverage has decreased further following the index rebalancing period and now stands at 22,833 lots or $2.7 billion below average. The risk of trade wars continues to rage, as evidenced by Sunday’s spat between US President Trump and Colombia’s President Petro. The instant trade war on X at some point promised tariffs as high as 50% on Colombian coffee imported into the US (totaling 4.6 million bags last year or 39% of Colombia’s exports) before the two sides reached an agreement. Lastly, speculative interest in coffee continues to grow as Non-Commercials now exceed 50,000 lots of net length for the first time since July 9th, 2024 (peak winter season period), and at $6.2 billion notional value it is now the largest dollar investment in coffee in history. All of these records point to risks further ahead but also suggest that perhaps last week’s action was too much too fast. Therefore, I expect coffee futures to pare back to establish a new floor of around 340 USc/lb by Friday. 

21 January 2025

This week, coffee prices rose 4.5 cents from Friday to Friday to end at 328.35 US cents/lb basis the most active March contract. Last week, I wrote that buy-side drivers will overwhelm the market this week, pushing futures prices higher to a 330-335 USC/lb range. In the end, the index rebalancing period ended with the Index selling -10,261 lots on the week, well below what I had expected. What was more surprising was that speculative investors were the majority buyers of the index selling. Commercial longs, a proxy for the roaster, actually reduced their positions by 1,488 lots. This puts the Commercial long in the lowest position since February 20th, 2024 and nearly half of the January 5 year average. It is clear that roasters missed their chance to fix the market in a well-advertised period of liquidity. Now, I fear that the amount of liquidity in the market will collapse, leaving roasters forced to chase prices higher as they take delivery of their Q1 inventory. On top of this, the initial moves of the incoming Trump administration are likely to add volatility this week, which would be positive for commodities. Therefore, I believe that we will finish the week breaking out of the 330-335 range I mentioned last week. 

13 January 2025

This week, coffee futures prices rallied 5.2 cents from Friday to Friday to end at 323.85 USc/lb. My bold prediction last week was that despite the massive index rebalancing occurring, prices would fall a bit at the start of the index selling but recover to unchanged by the end of this week. Prices fell 2.2 cents from Monday to Wednesday before new buying came into the commodity complex. On Thursday and Friday, futures rallied 7.4 cents (more than my expectation) as selling from Index rebalancing was overwhelmed by macroeconomic flows into commodities. These flows were thematically tied to a selloff in the equity space following a surprise US jobs growth figure in December. The logical flow is that better employment can make the Federal Reserve more hawkish in its effort to combat inflation, and inflation pressures themselves can be stronger with a better US labor market. This is a commodity buy and an equity sell signal. This week, we will see if indeed inflationary pressures are stronger as US and the UK will release their CPI figures on Wednesday. My feeling is that a hotter inflationary figure will see another wave of buying coming into commodities. Therefore, as the index has 2 more days left of selling it is likely that buy-side drivers will overwhelm the market this week, pushing futures prices higher to a 330-335 USC/lb range. 

7 January 2025

In the last 2 weeks of the year, coffee futures basis the March contract fell 8.65 cents to end at 318.60 as of the end of Monday's trading day. The main driver behind the falling prices has been the end of year profit taking of long positions. The key period for Index rebalancing begins this Wednesday, where the Bloomberg commodity index is expected to sell between 14-19 thousand lots of futures in order to maintain its target weighing of coffee within its commodity basket. My estimate, as I've written for several weeks already, is on the higher end of this range. The main question posed by everyone in the market is: "Who will be the buyer of this sell-side liquidity?". The last 2 times the index had this many coffee futures to sell were 2015 and 2022. In 2015, the market fell 12 cents during the index rebalancing period, as futures were bought on a nearly even split basis by Commercial Longs (a proxy for roaster) and Non-Commercials (a proxy for speculators). In 2022, the index sell period was absorbed completely and futures actually rallied 8 cents. In this situation, speculators absorbed nearly all of the index's sell-side liquidity. I think a binary picture of the market going up or down is not particularly helpful. However, it's important to note that in 2022, the non-commercial net position started the year at 38,417 lots net long, very similar to what we have today, and that speculators extended their position to a high of 53,279 lots as of February 15th before the market came back down from a high of 251.75. Therefore, assuming that speculators are already heavily invested in coffee and may not want to buy more is short-sighted. Nevertheless, the roaster is likely also disciplined this time around and will unlikely chase the market higher in the case of a rally. Therefore, my bold prediction is that we fall a bit at the start of the index selling but recover to remain unchanged by the end of this week.

24 December 2024

Last week, coffee futures basis the most active March contract rallied 5.5 cents from Friday to Friday to end at 325 USc/lb. Last week, I had expected futures to test $3.50 again before coming down into year-end. Indeed, another attempt at a rally came in on Wednesday and Thursday, taking the market to a high of 341.8 before it reversed and we ended Thursday down 8.9 cents on the day. The key reversal suggests that perhaps there is some profit taking coming in from the long side into the end of the year. Indeed, the Bloomberg Commodity index is expected to rebalance its portfolio during the middle two weeks of January, which will mean selling a significant amount of coffee futures. While this is a well-broadcasted trade, the amount of selling (estimated at around 18,000 lots) in the current liquidity environment for coffee is significant. Therefore, it is plausible that speculator longs may want to take profit here into year-end and then reengage when the index starts to sell early next year. As a result, I expect the market to have a lower volatility session this week, falling back into a 310-320 range by the end of the week and perhaps going into the low $3 range into year-end. Thank you for taking the time to read my reports this year. 

17 December 2024

Last week, coffee futures basis the most active March contract fell 2.7 cents per lb to end at 327.4 USC/lb. I had predicted that financial difficulty surrounding coffee hedges would force continued buying by the commercial sector, forcing futures up to $3.50/lb. Indeed, by Tuesday, we reached a high of 348.35 before prices collapsed again and stabilized around 320. Now it seems that the market has found a new range of sorts, with technical resistance appearing at 350 and support coming in below 320. Final end-of-year buying is needed by roasters to finalize their books for the year, while on the high end, it seems that the market is now less susceptible to major financial distress. This is in part due to participants having time to reassess their situation and providing enough liquidity to stay solvent above 350. Finally, the holiday season in coffee wouldn’t be complete without some drama to get the markets moving. The rally on Tuesday coincided with a major trade house releasing their Brazil 25/26 crop figure, showcasing a major reduction in crop potential (down to 35 million bags Arabica) and highlighting an irreconcilable deficit in the coming year for coffee. The next day, another trade house released their report showing a crop figure of 40 million bags, and instead showing a minor deficit for the 25/26 crop year. Interestingly, over the two days, the market fell 9.9 cents, so it seems that the second report was the more widely trusted one. On our end, we are also closer to the latter’s view that the upcoming crop would be difficult but that the headwinds to production are not irrecoverable, especially with futures trading at 50+ year highs. Nevertheless, I would still expect the market to test $3.50 again this week before profit taking into year-end begins next week.

10 December 2024

Last week, coffee futures basis the most active March contract rallied 34.05 cents/lb from Monday to Monday to end at 330 USc/lb. I predicted last week that “we are still in a low liquidity environment and prices could just as easily go back up tomorrow”, but “in order to stabilize lower, the market needs to avoid breaking above $3/lb on Tuesday.” The market did not stabilize as news of the collapse of Atlantica Group, a Brazilian supplier exporting 2 million bags of coffee annually out of Brazil came out. The market rallied back above $3 as hedges that were put on Monday likely were lifted (bought) again. Multiple supply chains are being impacted by the bankruptcy procedures of Atlantica, and the financial stressors on Brazilian suppliers probably mean more defaults would come. Traders and exporters with physical positions must have a hedge to protect themselves from market volatility. However, those hedges are expensive to maintain and in a one-directional market, may get bought back once the certainty regarding the delivery of the physical coffee comes into question. Friday saw the bulk of the price action, where a 17-cent rally took us to new highs. At this point, all eyes are on the financially stressed players in the market, who seem to be smaller and medium-sized producers and exporters at the moment. It is likely that they are not able to sustain the financial difficulty of maintaining their coffee hedges around these levels, and will be forced to buy. Therefore, my prediction is that we will continue to go higher, approaching $3.50 by the end of this week. 

3 December 2024

Coffee futures fell 8.75 cents from Monday to Monday, closing at 296.05 basis the most active March contract. In a week of immense volatility, futures prices climbed as high as 335 US cents/lb, the highest prices for coffee in nearly 50 years,  before falling a whopping 22 cents/lb on Monday, the largest single-day collapse (in cents/lb) since 1997. Last week, I wrote that “the market will stop rising when the long speculator decides to take profit and the above 3 factors stabilize. I approximate that happening somewhere between $3.15/lb and $3.50.” I am happy to say I generally was correct in my assessment. The important catalyst for the downturn is exactly what I had written about last week. Speculative longs have decided to start taking profits on their positions on Friday after there was news of some Brazilian exports filing for bankruptcy protection. It can be assumed that these financially stressed entities were the ones that lifted hedges for physical coffees above $3. Once these hedges were lifted, the market simply ran out of buyers. Overall trading volumes on Monday were lower than on Wednesday or Friday, yet the price action was stark. In an illiquid environment, prices can correct just as quickly as they go up. However, it is important to consider that indeed we are still in a low liquidity environment and prices could just as easily go back up tomorrow. My prediction is that in order to stabilize lower, the market needs to avoid breaking above $3/lb on Tuesday. If that happens, the market will begin to consolidate lower in a broader 295-275 range. 

26 November 2024

Coffee futures basis the most active March contract continued to rally last week, closing at 305.10 US cents/lb, a rally of 22.90 cents from Monday to Monday. Another 1 cent higher would put the prices at the highest level in my time series dating back 30+ years. My forecast last week was that “new highs of 290 could get tested before December futures first notice day before the market starts to calm down below 275 this week”. Instead, panicked buying broke us well above 290 by Wednesday after which more generalized panic set in. The issue of panic is real in such a market environment and comes from 3 angles. First and foremost, is the increased cost of holding hedges due to the rising costs of maintaining exchange-mandated margin calls.  Holders of futures shorts (with offsetting physical longs) must pay a margin in order to hold their position. As prices rise, the margin increases. If prices are already high and cash is tight, the financing cost of additional margin calls becomes real. This is the most common reason why smaller exporters and producer cooperatives go bankrupt. They cannot afford margin calls. One way to reduce margin call pressure is to reduce the amount of hedges by buying futures. A second factor is the rising possibility of producer defaults. The more rapidly the futures price goes up, the more likely a producer sold coffee well below where they can sell it now. Often, internal market dynamics and cash constraints of buying physical are the leading factors of a producer's default rather than greed. Nevertheless, in the case of a producer default, the receiver of the coffee suddenly finds themselves a short hedge for a coffee they do not actually have, resulting in the need to buy futures. Lastly, comes the pressure on market makers. As prices go higher, market makers who sell pricing structures such as call options need to square up their positions by buying futures. The closer the strike gets to the money, and the more implied volatility goes up, the more futures they need to buy. These 3 factors are unfortunately cascading, and any active sellers typically step out of the way of this cascade. Therefore, the market will stop rising when the long speculator decides to take profit and the above 3 factors stabilize. I approximate that happening somewhere between $3.15/lb and $3.50.

19 November 2024

Last week, I predicted that coffee futures would oscillate in the 250-260 range as macroeconomic flow into commodities takes precedence over fundamental factors in coffee. Instead, coffee futures rallied a whopping 30.2 cents from Friday to Friday to end at 283.3, the highest close since September 7th, 2011. A miss of 20 cents in my predicted range is a tough one to swallow and an even harder one to explain. I believe a combination of factors has ripped futures prices higher this week. First, indeed broader-scale commodity buying continued to flow into the coffee market as the election aftermath got digested. Then, inexplicably came an intense focus on the relevance of the EU Parliament’s vote on Thursday on EUDR as well as an additional set of proposals, which relaxed some of the original rules and included a 2-year implementation delay. Some in the trade believed that the EU parliament was risking losing the vote for the initial delay proposal by introducing the new proposal, which could send us back to the original deadline of Dec 31, 2024 for implementation. The ensuing panic brought futures up further than they had been before EUDR was even delayed. This is a testament to the lack of liquidity in the market, specifically when it comes to sellers. Farmers in Brazil saw the rally come to them but did not decide to sell coffee. I believe the reason has as much to do with the financial constraints faced by the buyers of this coffee (who have larger cash outlays in a rapidly spiking market) as with the fact that farmers' earnings are at record levels for 2024. With record earnings come record income tax bills due at the end of the year. A postponement of sales till January avoids this additional complication. Therefore, I believe that we were in a perfect storm scenario to send futures close to record highs. I think the accepted vote of the initial proposal for EUDR delay until December 2025 will bring some calm into the market. Nevertheless, I feel that new highs of 290 could get tested before December futures first notice day before the market starts to calm down below 275 this week. 

12 November 2024

This week, coffee prices for the March contract, now the most active, rose 10.7 cents from Friday to Friday, closing at 253.1 US cents/lb. I had expected last week that the level of support at 240 will be tested this week and likely broken by Friday. Instead, the market steadily rallied back above 250 USc/lb by Tuesday before suddenly breaking higher on Thursday in an 11 cent rally. Friday's price action saw the market reverse course 7 cents lower, but the damage was ultimately done to the chart. It seems that rapid fund investment around the December contract option expiry and the outcome of the US election had a hand in the market behaving the opposite of my prediction. Once the results of the election became clear, the US dollar strengthened significantly on the back of expected increases in tariffs, sending the Brazilian Real weaker and, consequently, futures lower on Wednesday. However, the pattern would not hold and futures prices rallied on Wednesday from a low of 243 (5 cents down) to exactly where they opened. This resilience in the Arabica market perhaps showed speculators that momentum traders were done selling and that the impending option expiry on Friday has some vulnerable shorts still in the market. What followed was a 'pump and dump' type price action that has so often occurred in coffee this year around contract rolls (almost exactly the same trading pattern occurred on August 7th - 9th right after most positions rolled from September to December). So where does that leave us this week? I think a positive macroeconomic flow into commodities from the US election (stronger dollar) and lower interest rates will likely to continue. Therefore, I would expect futures to continue to oscillate in the 250-260 range this week as fundamentals and weather take a back seat.

5 November 2024

This week, coffee prices cascaded down to 242.95 US cents per pound basis the most active December contract, a fall of 5.45 cents. I had estimated that the market would fall to 240 US cents/lb by the end of this week, so I was slightly off target but nevertheless aligned with the broader context of momentum traders reversing positions on a break of 245. This week, the focus shifts to the rolling period where traders get out of their December futures positions and move into March as the primary trading month. With the largest open interest expecting to shift on Monday's report from December to March, this marks the earliest time (tied with 1996) that the Open Interest changes from December to March. At first glance, that may indicate traders' unwillingness to remain exposed to the front month spread (calculated as the difference in price between the front and second futures month). However, the spread has weakened over the last 36 trading days from a high of +2.85 to as low as +0.4 cents on Thursday's close. This is the least inverted the front month spread has been since November 2023, when futures prices were trading at 167. Given that inversions doubly penalize holders of inventory, it may be that market participants simply saw a window of opportunity to move their positions with the least amount of pain. However, without traders and roasters stuck in the December contract and with passive money managers such as Index still rolling their futures, it is likely that this spread will continue to weaken. Overall, this has negative implications not only for spreads (broadly called the structure of the market), but also for futures prices. Therefore, my expectation is that the level of support at 240 will be tested this week and likely broken by Friday.

29 October 2024

This week, coffee futures prices rose 0.15 cents from Monday to Monday to end at 251.85 US cents/lb basis the most active December contract. Last week, I wrote that “rainfall and a shift in technical momentum indicators in the Robusta market will pull Arabica futures lower this week. I expect prices to break 250 USc/lb this week and find support around 245”. Futures did exactly that, closing at a low of 244.7 on Thursday before bouncing on Friday and Monday to end the week essentially unchanged. New reports of damages to coffee trees in Brazil are starting to circulate as teams vie to be the earliest reporters of on-the-ground conditions following a large-scale flowering event. I believe that rushing to the field to be able to assess the damage first is a mistake. The most important reason is that the onset of the rainy season has been delayed. This means that trees will not look the same as they would in other, more normal years. Furthermore, re-foliation of the coffee tree following harvest is a natural phenomenon that occurs after flowering. A tree that has just undergone flowering and fixation may not have a lot of leaves yet but will start to grow them. It is on the basis of the vegetative state of the tree as well as the fixation of flowers into cherries that farmers make their decision to renovate their farms or wait it out another year. With weather conditions currently being ideal for coffee production in Brazil, and our outlook for November continuing to show healthy rainfall totals and lower temperatures, it is possible that trees that may still look bad today with rejuvenate come the middle of November. Consequently, farmers in Brazil who are making record profits on their sales may change their minds about choosing to prune after several weeks. Therefore, for this week, I think it's more important to focus on the technical indicators in the market, which show large-scale momentum-based long profit taking in the event that 245 is breached again. Therefore, my estimate is that the market will fall to 240 US cents/lb by the end of this week.  

22 October 2024

This week, coffee futures prices basis the most active December contract rallied 5.25 cents from Friday to Friday to finish at 257.3 US cents/lb. Over the last 2 weeks (since I wrote this report), futures have been almost unchanged. I had expected prices to “continue to head lower to the 235-240 range by the end of the week as rains hit the ground in Brazil”. Indeed Brazil has seen a flush of rains over the last 2 weeks, with accumulated rainfall for the season hitting above the important 100mm mark last week. Over the weekend a major flowering across all of Brazil’s Arabica regions occurred. Due to the heaviness of the rainfall and the fact that trees have been exceptionally stressed, this flowering is extremely concentrated. It is possible that the smaller earlier flowering and this one will be the only ones for the season, which means that the quality and consistency of bean sizes at the time of harvest will be very uniform. This is a good omen for larger cherry sizes after the previous harvest was plagued by the lack of large screen availability out of Brazil. However, we are not out of the woods on the Brazil crop yet as trees experienced extremely dry conditions for more than half a year and many have lost leaves. A significant amount of energy reserves will be required to foliate arabica trees, fixate flowers into cherries, and produce cherries. It will be equally important to gauge the response of farmers to how their trees recover. If farmers don’t feel that a decent crop is coming and issues with fixation persist, some may choose to prune their trees, resulting in a loss of production for the next season. A counterpoint to this is economics would dictate record profits on coffee should incentivize farmers to keep trees productive for as long as possible. But with all the speculation yet to come, I believe that rainfall and a shift in technical momentum indicators in the Robusta market will pull Arabica futures lower this week. I expect prices to break 250 USc/lb this week and find support around 245.

8 October 2024

This week, coffee futures basis the most active December contract collapsed 24.60 cents on the week to end at 245.65 basis the most active December contract. Last week, I wrote that a fast resolution (of the US East Coast dockworkers strike) with greater confidence in Brazilian rains will likely send futures back to 250-260 range, while a weeklong strike (which is expected to add 5 weeks of port backlog), would push futures to new highs. The strike indeed ended on Thursday, 1 day before I anticipated it having a significant impact on market dynamics. Also, the main driver behind the collapse has been the certainty around the return of the rainy season in Brazil, which is expected to bring significant precipitation starting Thursday. A third major event helped to extend the market downside further beyond my range. This announcement was the possible postponement of the enactment of the EU Deforestation regulation until December 30th, 2025. The law would have nearly a full-year phase-in period, significantly changing the dynamic regarding current stocks in Europe. The previous thought was a steady sense of nervousness around the preparedness of certain origins for EUDR, leading some to think that coffee stocks in Europe would be depleted prior to the regulation taking effect. We were of the opinion that the market was more prepared than many realized, leading to the opposite situation.  With EUDR in force Dec 2024, I believed that January 2025 would see excessive coffee stocks in Europe without a possible avenue for them to be used, which would be a bearish overhang on the market. However, now that all participants are likely to be given a 1-year reprieve, the short-term nervousness certainly disappears but in the longer term many of the stocks not thought viable could be sold freely. Nevertheless, 3 major risk-off events all contributed to the easing of market prices. This week, I expect prices to continue to head lower to the 235-240 range by the end of the week as rains hit the ground in Brazil. 

1 October 2024

This week, coffee futures, basis the most active December contract, continued to rally 6.6 cents from Monday to Monday to end at 270.25 USc/lb basis the most active December contract. Last week, I wrote that at the moment we believe that the return of rains will arrive by the second week of October, putting me in a prediction range of 250-260 USc/lb by the end of this week. The weather forecast for Brazil has remained largely the same for us, as another minor and sporadic flowering has occurred over the weekend. We now believe that the 2nd week of October rains will be significant to reduce the stressed conditions of coffee trees in Brazil and help stabilize the current situation created by an extended dry season and excessive heat. However, despite these features becoming commonly accepted by the market, futures still rallied. One of the key explanations I can offer is that we have breached the previous 2022 high by going up over 270 USc/lb on Tuesday. This century, coffee futures breached above 270 cents a lb for only 58 days. With 6207 trading days done since 2000, this puts it within the 1% percentile of coffee futures prices. All other times where prices were this high or higher occurred in 2011 when an extremely tight supply situation coincided with a commodity super cycle. Therefore, we find ourselves in the thinnest trading environment of recent history. As such, financial stresses are being felt acutely in the market, and hedgers with physical coffee and short futures positions are forced to outlay significantly more financial capital. This creates a situation where once eager coffee futures sellers, such as exporting coops in Brazil, do not have the capability to sell futures through ordinary course of business because they cannot meet margin requirements. Even for trade houses with a matched portfolio of buyers and sellers, financial constraints occur because coffee is typically paid for when it gets on the water, whereas roasters usually pay some time (based on terms) after when their coffee is delivered. Therefore, the upcoming longshoreman port strike expected to begin on October 1st on the East Coast of the US is only adding fuel to this fire, further straining the coffee financial supply chain and reducing the appetite for adding new futures hedges (shorts) to the market. In my estimation, coffee prices will react this week to the events of this strike. A fast resolution with greater confidence in Brazilian rains will likely send futures back to (the now doubly incorrect) 250-260 range, while a weeklong strike (which is expected to add 5 weeks of port backlog), would push futures to new highs.

24 September 2024

This week, coffee futures, basis the most active December contract, rallied 5.1 cents from Monday to Monday to end at 263.65 USc/lb. Last week, I wrote that, “I believe that we will go up in price on Monday and Tuesday to a range of $2.75-$2.80 before prices start to consolidate lower on Wednesday-Friday back into the $2.60s.” I overshot in my early week estimate as we saw the market trade at a peak of 271.80 before falling off. Then, on Friday, news of rains throughout Brazil’s main Arabica producing region combined with rumors of the EU potentially weakening the upcoming EUDR regulation sent the market in a downward spiral, falling 10.9 cents to 250.75 USc/lb. Clearly, this price action was also overdone, and the market completely reversed course on Monday, climbing a whopping 12.9 cents to finish back above 260. Across 2 days, the market has rallied 2 cents, but the volatility makes it extremely painful for anyone hoping to catch an extension of a run (seeing negative momentum and selling or buying a breakout higher). On the weather front, it is much more calm than the price action has indicated. Late last week and over the weekend, sporadic thunderstorms brought on average 5-15mm of rainfall on Brazil’s main Arabica regions and alleviated drought concerns for Brazil’s Robusta growing region of Rondonia. The rainfall is likely going to be enough to stimulate the first major flowering for Brazil’s most important region of Sul De Minas. This is where things get tricky as follow up rains will be needed within 2 weeks of flowering in order to help fix flowers into cherries. This morning, models for the 11-15 day forecast trended drier, initiating some concern. Nevertheless, at the moment we believe that a few storms will pop up this weekend with the return of more widespread rains by the second week of October, putting me in a prediction range of 250-260 USc/lb by the end of this week.

17 September 2024

Last week, Arabica coffee futures lifted 23.8 cents higher from Friday to Friday to end the week at 259.8 US cents per pound basis the most active December contract. I wrote last week that my expectation is for the market to return to a $2.50-$2.55 range, which the market broke out of by 4.8 cents. The breakout from this range is meaningful as the high on Friday of $260.45 matched the high from February 10th, 2022, to the tick. Once that high is broken, coffee futures prices will be the highest since 2011, when they reached as high as $308.9 cents on May 3rd, 2011. A simple breakout from the 2022’s highs can send momentum traders on a buying spree, while anyone who sold futures in anticipation of normal return of rains to Brazil will most likely have to liquidate their positions on a breach of 265. Last week, I wrote in some detail on the flowering we have seen in Brazil and the impact of hot weather causing flower buds falling off coffee trees, which is a new phenomenon for our agronomy team in Brazil. We are still assessing the damage caused by excessively hot temperatures and we believe at the moment, coffee trees need around 20mm of rain in order to help stabilize deteriorating conditions. Our meteorologist Greg Oddo will highlight these issues as well as offer his weather forecast here. As for futures, I believe that we will go up in price on Monday and Tuesday to a range of $2.75-$2.80 before prices start to consolidate lower on Wednesday-Friday back into the $2.60s. 

10 September 2024

Last week, Arabica coffee futures fell 8.05 cents from Friday to Friday to end the week at $2.36 basis the most active December contract. Futures lifted to a high of 248 as of Thursday before falling 8 cents on Friday. Last week, I wrote that my expectation is that the market would go back to the 250-255 USC/lb range due to dry weather in Brazil. The rally didn’t seem as strong given a negative macroeconomic backdrop (S&P 500 fell 4% on the week and Coffee’s cousin Sugar dropped 2.4%). Also, it seems that speculators decided to sell the dry weather story on the back of rains returning to Brazil in the 3rd week of September. Meanwhile, our agronomist team on the ground spent the week in flowered regions of Baixa Mogiana, West Sao Paolo, and Western Sul De Minas (all together accounting for about 20% of Brazil Arabica’s productive area), which saw a 20% flowering at the end of August. Their findings disturbed them as they saw some unopened flower buds drying out and dying on the branch before opening. Typically, the main issue regarding dryness occurs after flowering has occurred as the coffee tree ‘wakes up,’ requiring higher rainfall totals for its metabolic needs in order to ensure the flowering fixes into coffee cherry. If timely supportive rains do not arrive within 2 weeks of flowering, flowers can drop to the ground and never turn into cherries. However, this year, we are also seeing, for the first time, flower buds falling off coffee trees before the flowering actually occurs. We believe that this response is due more to the desiccated nature of branches, the high temperatures (35 C in early spring), and significantly higher than normal solar radiation resulting in a scalding effect on the flowering buds. We are still not sure how widespread this phenomenon is, but overall the situation is shifting our analysis of how much rans needs to come in the 2nd half of September to how much damage we are likely to have in Brazil until those rains arrive. Therefore, my expectation is for the market to return to a $2.50-$2.55 range this week.

3 September 2024

This week, coffee futures prices fell 5.6 cents from Friday to Friday, ending at 244.05 USc/lb basis, the most active December contract. Last week, I doubled down on my forecast that we would breach 250 USc/lb last week, and we did. On Tuesday, prices finally went up to 255 and followed up to a high of 257.85 as Brazil's dry and hot weather conditions took center stage in the market. Some of the factors behind the falling price into the end of the week have been additional ICE Arabica Certified stocks showing up in Europe, reducing pressure on current inventories ahead of the EUDR cutoff date of Dec 31. However, I believe that a timely return of rain in Brazil is the primary factor needed to calm the market down this week. On our side on the ground, we are seeing a larger than previously expected flowering over the weekend, which increases the risk of stress to the crop if the weather forecast remains the same. With exceptionally hot and dry weather and very low moisture in the soil, trees cannot sustain the current flowering and will lead to some flowers dropping to the ground without ever becoming cherries. For Robusta, consistent dryness in Rondonia has also resulted in losses of maturing cherries, reducing the crop potential in this region for 25/26 crop. Therefore, my expectation is that the market will go back to the 250-255 USC/lb range this week.

27 August 2024

This week, coffee futures prices rose 3.2 cents from Friday to Friday to end at 247.3 USc/lb basis, the most active December contract. Last week, I forecasted "us breaching 250 USc/lb by week's end unless rains come into the forecast in Brazil." Indeed, we saw a larger than expected flowering in Brazil’s Arabica areas of lower Mogiana. This type of flowering occurs three weeks earlier than typical for the season and presents a risk of loss if no follow up rains occur. Thankfully, some rains did occur over the weekend in Brazil, but now the forecast is turning hot and dry again. This back and forth in the weather is coming at a critical time of the year because we are assessing the production potential for the 25/26 crop that will begin harvest in June 2025. A flower lost during the fixation period will not become a coffee cherry, leading to a loss of productive potential for the entire year. As we already have a forecast for a deficit in Arabica coffee for the next season, any additional production losses exacerbate the tightness in supply. Therefore, for this week, I am doubling down on my prediction from last week that we will breach 250 USc/lb by the end of the week.

20 August 2024

This week, coffee futures prices basis the most active December contract rallied 13.85 cents from Friday to Friday to end at 244.1 US cents/lb. Last week, I wrote “that we once again will attempt a test of the 245-250 resistance point”, and it seems I was correct in my assessment that the market would rally despite there being no meaningful frost in Brazil. The issue on the weather side in Brazil is that the focus is shifting quickly towards the flowering potential for the 25/26 crop. The cold front brought sporadic showers to the coffee region that will likely result in a small irregular flowering event for the 25/26 crop. The issue is that rain wakes coffee trees up from dormancy, and once a tree wakes up, it needs subsequent rainfall to sustain its flowering and create coffee cherries. If no follow up rains occur, these flowers may be aborted, resulting in a loss of productive potential for the year. This week, our meteorologist sees hotter and drier weather in Brazil for the next 2 weeks. Indeed, this will stress trees that have flowered, and the swing from really cold to really hot temperatures could add stress to trees that have not yet flowered. Combined with a positioning analysis that saw speculators reduce risk in coffee futures over the last 2 weeks, the weather creates a potential powder keg to the upside this week for the coffee market. Therefore, I foresee us breaching 250 USc/lb by week’s end unless rains come into the forecast in Brazil.  

13 August 2024

Last week, coffee futures prices rallied 12.85 cents from Monday to Monday to end at 238.55 basis, now the most active December contract. Along with the index roll, making the most active traded position the December month, a slew of weather news came our way this week via Brazil. I expected the week to be volatile but less so, with us “see(ing) a test of breakout on both sides of the 225-235 range before prices end up back within it.” With a high of 245.50 and a low of 221.00 it seems that the overall range got extended with significant intra-day volatility occurring throughout the week. On the low end, it seemed that macroeconomic indicators took the market below its recent trading range early in the week, driven by a broader selloff stemming from Japan Central Bank related impacts. However, as the week progressed, it became clear that we were facing our first cold event of the year in Brazil, with potential for frost forecasted on Sunday morning and (this coming) Tuesday morning. This sent the market towards recovery, which was buoyed by an alleviating macro environment. Monday morning saw prices open 9+ cents higher than Friday’s close, indicating a potential frost event. Indeed, some frost did occur somewhere on Sunday morning, but at the moment we believe that crop damage from this event is limited only to the areas that are historically known as “high risk” frost areas, such as in valleys. I believe that the market priced this event similarly, and prices failed to lift off higher than the open to the end of the day. However, we still have Monday night/Tuesday morning to get through before weather models warm up again. Therefore, my current prediction is that we once again will attempt a test of the 245-250 resistance point this week.  

5 August 2024

This week, coffee prices basis the most active September contract rose 0.25 cents from Friday to Friday to end at 230.5 US cents/lb. Two weeks ago, I wrote that I expected prices testing again the critical resistance level of 250, before finishing the week lower into a 235-245 range. Selling overextended last week to bring us down firmly into 230’s. This critical level is important as many technical and momentum indicators are sitting just below. Speculators have continued a pattern of liquidation over the last 3 weeks as the Brazilian cold season comes to an end. Furthermore, doubts in the global economy appeared suddenly this week. The US Federal Reserve’s comments of leaving the possibility of a interest rate cut in September suddenly shifted sentiment from exuberant to fearful on Thursday as a string of US jobs data showed growing unemployment, sending recession indicators flashing. Despite some clear signals indicating a risk off environment for speculators, overall positions still remain largely entrenched with $7.5 billion invested on the long side (2^nd in the Agricultural and Softs commodity space to Live Cattle). Furthermore, the market is finding itself supported by healthy commercial buying. Commercial Longs (a proxy for roasters), have bought for 6 straight weeks and now have the largest amount of futures coverage in a year. This supportive buying here means less buying later, and paints an additional negative signal as we begin our approach to September futures first notice day several weeks away. Therefore, my feeling is that next week will see a test of breakout on both sides of the 225-235 range before prices end up back within it.

29 July 2024

The Arabica coffee market continued its consolidation phase, finding strong support in the low 230s while also failing to breach 245 to the upside. Towards the end of the week, coffee fell to 3-week lows as the “frost premium” starts to be removed from the market and the risk of sub zero temperatures diminishes. Forecasts indicate improved rainfall for August as we get past the peak of the Brazilian winter.

The conflict between Yemen’s Houthis and Israel escalated in recent days after the militant group struck Tel Aviv, and Israel retaliated by hitting targets near the port of Hodeidah. As a result, the cost of transporting goods continues to spiral with rates for shipping containers tripling on several routes.

According to analysis by Wells Fargo, USD strength is holding for now, but attention is shifting to the Fed meeting in September. Interest rates and the U.S. election will be the dominant drivers of currency volatility over the coming months. Expect outsized headline impacts to Canadian dollar, Mexican peso and Japanese yen. Slower U.S. economic growth and Fed easing will weigh on the USD in 2025, but a risk scenario of more expansive fiscal policy and increasing tariffs could provide an extended period of support for the American currency.

Improving coffee flow aided by Brazil's strong harvest has begun to ease global supply concerns. Brazil's arabica coffee harvest is 75% complete, faster than 65% a year ago and the 5-year average of 69% at the end of July.

The coffee market ended a downward week dropping 3.34% and closing at 230.25

23 July 2024

This week, coffee futures prices rose 0.90 cents to finish at 243.05 USc/lb basis the most active September contract. Two weeks ago, I wrote that I had expected prices to “to continue to oscillate in a 235-220 range as we push past the peak of the cold season in Brazil”. Instead, it was a rally on July 9^th that forced prices up to 249 USC/lb before finding sell-side support at $2.50. The rally continues to be driven by increased speculative interest in coffee, which takes advantage of late roaster fixations to revive its position. To explain with numbers, speculators currently stand at 47,856 lots of net long investment. This is in the 98^th percentile of their historical investment levels, but is also lower by 5,577 lots from their maximum position held this year on April 16^th. Futures prices however are above 240, whereas in April, they were only 228 USc/lb. So in essence, speculators were actually able to sell and bring prices higher. The buyer in this case has been the roaster (represented on the CIT report as the Gross Commercial long). This category built 14,169 lots of fixation length in around 227 in June, prior to July first notice day, and since has bought 14,364 lots over 4 straight weeks at a weighted average price of 235. Why would the roaster buy at higher price levels? Well because they have to. At some point differential contracts to be fixed must be fixed and converted to a futures long. Compounded by “hand to mouth” mentality of buying, the speculators know that there will be some base level of price support coming nearly every day, regardless of price level. Therefore, the current strategy has been to buy, sell while the roaster is forced to fix higher, then buy again. What stops this vicious cycle? Increased interest of selling from origin, specifically Brazil? This week, I see prices coming to test again the critical resistance level of 250, before finishing the week lower into a 235-245 range.

15 July 2024

The Arabica coffee market began the week surging upwards, rising by almost 7% on Tuesday and reaching yearly highs. Robusta is also rallying, posting a new all-time high. Vietnam's June coffee exports fell to 70,202 MT, the smallest amount for June in 13 years. Year-to-date, Vietnam's coffee exports are down 11.4%. By midweek, the market took a breather and settled down a bit, but with wild intraday swings, only to close firmly again on Friday.

Tuesday's 15.55 cent rally was Arabica's largest intraday move since July 2022 and marks the fourth day of 2024 when the market rose 10 or more cents in a single session, all of which have occurred in the past three months. Historically, a move of such magnitude has come from a distinct catalyst, but volatility is simply the name of the game in today's market. The current market environment has all the ingredients to keep volatility firmly in place: A tenuous balance between supply and demand, regulatory question marks around EUDR, significant logistical challenges, and outsized speculative interest.

From an analytical perspective, with the NY market hovering around the 240s and the Brazilian Real in the 5.70s (the highs of the past 12 months), the assumption would be for differentials to drop sharply. And yet, they are holding steady as well capitalized Brazilian growers are in no rush of selling.

In Colombia, the challenging Mitaca crop is ending with yields suffering substantially. This is best exemplified by Supremo beans, where the average conversion rate from parchment, at 35%, dropped to less than 20%.

Brazil's coffee exports from May to June '24 fell 18.6%. Logistical challenges out of Santos have been cited as one reason for the slowdown.

Over the past few months, I have received multiple calls from roasters inquiring about the state of the NY "C" market. It seems evident now that what the industry has been concerned about "for the future" appears to be here and now: climate change's effects on crops, production concentrated with fewer producers and financial trend-chasing speculation. Perhaps it happened slowly, then all at once.

During the week, the market traded over 10 cents more intraday in two separate sessions, responding to export data from Vietnam and Brazil. The market is very sensitive to the level of inventories in destination countries and any supply disruption from the two largest producers will trigger a market response.

An extremely volatile week saw prices rise 8.65%, closing at 248.75.

~Jorge