Porto Alegre, November 17th, 2023 – Coffee maintains the level of 170 cents, finding support in the fall of the dollar and the rollover movement of the Dec/23 contract, driven by the change in the certification rule of the ICE US. The market has already surpassed the expiration date of options but is still slightly impacted by the first delivery notice day of the Dec/23 position on November 21. This still motivates some short covering and supports the rise in New York.
It is clear that the market is inflated by adjustments in the Dec/23 position, which extend to a lower extent to more distant positions. The spread between Dec/23 and Mar/24 is around 540 points (5.40 cents), which reinforces the idea of short-term firmness and a good technical selling moment. Therefore, growers should pay close attention to opportunities.
Certified coffee stocks on ICE US fell to 287 thousand bags at the end of trading on November 15. It is the lowest level in more than 24 years (since March 1999), when at the end of the month there were only 243 thousand bags of coffee in accredited warehouses. It is worth noting that there was a similar downward movement in stocks during this period last year, which shows the December contract in New York to be quite vulnerable to these bottlenecks in certified supply.
In addition to the unfavorable arbitrage, as it is not worth delivering coffee to the NYSE, there is also the rising interest in selling these certified coffees. In this case, it is linked to the change in the exchange rules, which will make recertification stricter. The NYSE discourages coffee from remaining in accredited warehouses for too long.
To overcome this problem, many traders use the artifice of recertification. They remove very old coffee and certify it again as new. This practice will no longer be permitted by the exchange from December 1. So, those who have had coffee stored on the exchange for a long time are taking the product out of the warehouses to certify them later, which helps explain the accelerated reduction in the stocks of ICE US.
These movements end up distorting price formation on the exchange, reducing certified stocks, and opening up an opportunity for global sellers in the physical market. The fact is that supply remains calm in the global physical market. There is an expectation of slightly greater production in Vietnam and Colombia, and Brazil is likely to produce a larger crop in 2024 than the one reaped this year, driven again by the advance in arabica production.
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