Good afternoon and happy “2” day,
It’s been a very interesting period of consolidation in the C. After making the new highs up to 259.10 on Feb 8th and 9th, the market has really consolidated it’s gains trying to figure out the next step
here. There’s a lot going on lately, including macro features like currencies in conflicts around the world having a big effect on all commodity markets recently. We’re still having major issues with shipping, and don’t believe the articles you read in the Wall St Journal or on Bloomberg, at least in the ports where coffee is shipped, there is nothing improving to date, if anything things are only getting tougher, evidenced by countries like Brazil saying every month their shipments are lower simply because theycouldn’t ship what they had to. In the meantime stocks in all hands in the USA decreased last month and stocks at the C continue to decrease.
The commitment of traders issued on Friday for trading as of Tuesday Feb 15 showed that large fund added 2390 lots and were 63628 lots long while short funds actually also bought 767 lots and stand only 5,123 lots short. Trade were the biggest sellers, as we told you we thought we would see when this report was issued. We’re going to expect to see some fund liquidation on the next report.
Technically the market support here around 24600 in May has been holding but if it breaks expect further pull back to 24100. There’s a lot that’s not about coffee that will affect coffee this week. You’ll want to keep in focus the market this week.
There is a story this week in our mail feed that “Coffee prices may test 2011 highs this year”, we’ll share it below:
Coffee prices may “test 2011 highs” this year
Sat Feb 19 08:07:19 2022 EDT
The coffee can “test historical highs” of 2011 this year, depending on the evolution of the pandemic and the problems of transport and climate change, pointed analysts consulted by Lusa, who disagree on the impact for the consumer.
“The price of coffee, similar to other products, has risen in recent months. On an annual basis, coffee prices on the stock exchanges have risen almost 100%. This is the result of supply concerns and major transportation problems around the world. Ongoing climate change is also contributing to an increasing number of climate anomalies,” XTB analyst Nuno Mello pointed out in response to Lusa.
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are, for example, persistent droughts or “high temperature ranges” that end up destroying crops, as seen in Brazil, the world’s largest coffee producer.
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Brazil was subject to prolonged frosts, followed by droughts, which led to the disappearance of many coffee trees, with production losses compared to a normal season being at least “a few million bags”.
Thus, it is expected that coffee may “test the historical highs” of April 2011 this year.
This is also justified by the fact that the recovery of the crops may take a minimum of two years, keeping prices high.
Added to the impacts caused by transport, particularly with the worsening of delivery times to over 100 days.
“The transport of Brazilian coffee to the rest of the world has been affected, since the same ports are used for loading soy beans, sugar or coffee,” he explained
.
Quotations are also linked to this evolution, since they can contribute to make exports less or more attractive.
However, Portuguese consumers should not see this increase reflected in the price of coffee, not even in the face of rising input costs or drought.
Nuno Mello also specified that the price of coffee in a cup only represents between 1% and 2% of the total value, so the annual increase in the price of the raw material “should not translate into strong increases in the final products
.
In the same sense, the CEO of ActivTrades Europe, Ricardo Evangelista, said that despite the stabilization seen last year, “coffee prices are on the rise again”, and at the moment “the trend points to the maintenance of high prices”, which is justified by the decrease in supply, increases in transport costs and problems in the logistics chain
.
Given the reduced availability of Brazilian coffee in the international market, the “continued increase in prices paid by Portuguese consumers” is expected.
However, this increase is only expected to take place in mid 2022, considering that the last record value reached relates to futures contracts with delivery scheduled for April.
Ricardo Evangelista also noted that the rise in the inflation rate for 2022 will bring an “additional impact on the price consumers pay for the coffee they drink
.
To the production problems in Brazil, add the difficulties in the supply chains in the face of the covid-19 pandemic and the escalating prices, as highlighted by the senior economist at Banco Carregosa, Paulo Rosa.
“Higher fertilizer and fuel costs and labor shortages have boosted coffee prices, but it is expected that the difficulties in the supply chains will be normalized as the pandemic becomes endemic,” he pointed out.
Paulo Rosa stressed that the evolution of coffee prices will depend on the evolution of weather conditions and the “return to normality” in the supply chains and transport.
However, in the immediate term, coffee will continue to be more expensive, which may dictate a change in consumption habits and “encourage people to drink more coffee at home.”
According to
Bloomberg, coffee stocks on the exchanges have been falling since 2018
.
Coffee ‘stocks’ are currently 1.03 million bags, the lowest volume in 20 years, down from 1.54 million bags by the end of 2021.
Inventories are currently around 0.5% higher than annual global demand Let us know how we can be of assistance.
All the best,
The Armenia Team