Good morning and happy Wednesday,
The famous coffee market analyst William Shakespeare might have described last week’s coffee market as one that was full of sound & fury, signifying nothing. When the smoke had cleared, Dec futures ended within a penny of where they started at 96.08, up 80 points. With all of the macro events, the Brazilian Real at one point weakened to 4.20 but finished the week pretty much where it started. (A weak currency tends to correlate with a weak coffee market as lower prices look more acceptable translated into the Real.) But despite last week’s price activity, or lack of it, let’s not lose sight that the coffee market is trending negatively as it ended August down about 6 cents and the Real which began the month at 3.81 to the dollar ended at 4.13. European stocks were reported more than 200,000 bags higher on top of the US stocks increase reported by the GCA two weeks ago, adding to negative sentiment. Physical market was quiet as the summer wound down and producers not being so keen to sell at these prices. Many hope that as the season turns cooler in the northern hemisphere that the demand will pick up. In the meantime, differentials remain firm in the hopes of realizing half-ways decent prices for hard-pressed producers.
Coffee market seasonality on average bottoms in mid-year and by the end of August is on its way back up. Not so this year as we wind down from a huge Brazil crop and move into a smaller but still big new crop cycle. And as always, the speculators exaggerate the magnitude of the market movements.
A word about the speculative element in the market. Most of these professional traders use mathematical formulas to identify a trend and then trade accordingly. Some of these formulas are very quick to jump on a trend, getting into the market early but sometimes prematurely and wrong; some of these systems are slower and wait for more technical confirmation to signal a trend, thereby missing part of the market move but unlikely to be premature. And some trading systems are medium, somewhere in between. Today in coffee, it doesn’t matter what kind of system you employ – all of them would instruct the traders to be short the market, betting the prices will continue to fall. Some analysts like to use this as a contrarian signal knowing that when all the speculators are short, they will one day have to buy back their positions creating the possibility of a violent counter-rally. But for better or for worse, these systems traders seem to be right more than they are wrong, and the technical and fundamental damage they do to the market is very real. Aggressive selling by speculators will take out the resting roaster buy orders underneath the market, leaving the origin sellers orders unfilled above the market. That selling when it is executed can then create another leg down in the market as more and more roaster buying is completed.
Well whether the futures are going up or down or nowhere, the good thing is we can’t roast futures. Armenia has a full range of fresh coffees for your consideration, including recent arrivals of FTO and conventional Mandhelings that cupped beautifully. Other arrivals this month include Panama Baru Indian from Boquete region, fresh Colombian EP 10’s, and a really nice Guatemala Antigua.
Give us a call if we can help The Armenia Team