Good Morning, Happy Monday
The coffee market continued its steady erosion last week with the New York May futures down another 4 cents/lb to 94 Cents. Continued weakness in the Brazil Real with corruption charges filed against the ex-President didn’t help any. Origin differentials remain firm as producers are trying as best they can to maintain prices despite these sort of technical factors impacting New York futures which really have no direct impact on their cost of doing business. Technical or otherwise, however, we all do have to deal with the reality of the current price levels, and there are many forces at work which conspire to keep a market moving in the direction of least resistance (down at the moment). Kind of a Newton’s first law of physics (inertia) applied to the coffee market.
One of the arcane technical factors we like to watch is the options open interest, in this case put options, which is quite huge for May expiry (in about two weeks) for the 90 – 100 strikes (about 26,000 lots). Why? Many of these puts were sold by roasters (or traders on their behalf) so if the market were to slip below 90 cents, these players would be long 26,000 lots between 90-100. That’s 26,000 lots they would not need to buy. But if the market were to counter-rally above 100, they would not be assigned those 26,000 lots and would therefore have to step in and buy those futures to price out their coffee. This story will play itself out over the next two weeks but as you can appreciate, the lack of futures to buy in a down market below 90, or the need to acquire futures in an up market above 100, will tend to accelerate the direction of the market as Newton might have predicted.
Until somebody figures out a way to brew up a futures lot, however, it’s good to know that we stand ready with outstanding coffees for your consideration. Just arrived:
- Some delicate Panama’s
- Really nice Honduras from the Marcala region (FTO and conventional);
- Sumatra Grade 1 DP
- Top Papua New Guinea from Sigri Estate
We have a few Tarrazu’s left and more on the way. Arriving soon a wet polished Vietnam Robusta. We’ve been buying coffees off the Kenya auction and will let you know more when we get them on the water.
Coffees Arrived soon to be stripped (NJ):
- Top Brazil MTBG from Minas and a few microlots from the same producer
- Two boxes Colombian Excelso EP
- FTO Sumatra
Let us know if we can help.
The Armenia Team