Spring time rainy morning here in the Northeast. We’re reminded “April showers bring May flowers”. We can see signs the trees are fully awake now. Blossoms abound. Daffodils everywhere. Love it.
The market was on fire last week. Big volumes, spurred by options expiry kept the market supported and off we went to test 200.00 in the spot months. Spurred on by massive fund buying and offset in equal measure by origin selling, we’ll go through this in a minute.
Inflation, not just here in the USA but around the world is another major factor. In Brazil, consumption was down in part because of lower production leading to higher prices, but also strong inflation in the Brazil grocery sector. “According to a Scanntech study, in 2022 the price of coffee shot way above the basic food basket, and the result was a reduction in the consumption of the beverage among Brazilians. There was a 4.3% retraction in units sold due to a 44.8% increase in the unit price, against a 20.2% increase in the basic food basket. Official inflation measured by the IPCA was 5.8%.
The survey reveals that in the first quarter of 2023 prices and sales retraction slowed down, but consumption is still below that registered in the same period of 2022.”
The Brazil Real continues very strong at 4.92935 as does the Colombian Peso at 4414.9.
The commitment of traders report issued on Friday April 14 for trading as of Tuesday April 11 showed funds were big buyers as stated above. Long fund bought more than they have in some time, 7837 lots and now stand 28,147 lots long. Short fund was also a buyer, 3413 lots and now stand 17,240 lots short. Commercial traders sold a massive 11,910 lots and roasters are once again behind.
ICE warehouse stocks now total 710,687 bags as withdrawals sped up a bit. There is still no coffee pending grading.
Colombian production fell 13% in March to 799,000 bags down from 914,000 a year ago. In the past 12 months production decreased by 8% from 12 million bags to 11.1 million bags. Exports fell by 19% totaling 906,000 bags against 1.1 million in 2022.
There are reasons we use stops in our trading and last week reminded us why we do. The market, which had been rangebound for the last 3 months, finally broke free of the upside resistance at 190.00 and now we’re challenging the 200.00 level where origin selling really picks up. Breaking the 200 day moving average brought in the buying we thought might follow, as you can see from the COT report. How long will it continue is the question to be answered. 28k long isn’t an historically big number, so it can continue to work higher, and we think it already has in the trading Wednesday until this morning, although the volumes have come down since options expired on last Thursday. 9 period RSI is nearing
overbought levels. Nice round numbers on the upside now 200.00 then 220.00. Downside we have “resistance becomes support” in the 200 day moving average now around 186.00 breaking that would bring 180.00 then the recent low 170.50. We want to sell the market up here but would like to avoid “spitting into the wind” (lots of cliché’s this week). We’ll look for signs funds are getting weary.
Our Dumerso Organic Yirgacheffe Gr 2 is in the warehouse now, as are some really nice fresh Colombia Excelso and Supremo.
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All the best,
The Armenia Team