Porto Alegre, December 1st, 2023 – Volatility has quite increased in coffee trading in New York. The Mar/24 position is around 170 cents, making it difficult to find direction. In this sense, trading sessions have been marked by large intraday fluctuations and interspersed sessions of sharp gains and losses. This is making life difficult for coffee buyers and sellers. Financial vulnerability still explains much of this volatility. Movements in exchange rates, future interest rates, and commodities end up reflecting on coffee negotiations on ICE US, weakened by low certified stocks and the change of the main contract for March/24.
On the fundamental side, traders monitor the weather in Brazil and the arrival of coffee from other important origins, which begin the business season in the last quarter of the year. The production cut and the delay in both harvest and processing in Vietnam support prices. In the case of Brazil, although the positive reading around Brazil’s 2024 crop still prevails, heat pockets and less rain end up generating some movement toward climate protection, which also boosts prices on ICE US.
The combination of financial fragility and fundamental uncertainty together with the rally in oil served as a trigger for a hike in prices on ICE US, with the movement gaining intensity after the break of important technical bullish lines. As a result, the Mar/24 position works above 180 cents, breaking upward barriers. It remains to be seen whether the movement is consistent or will be back to the previous seesaw.
The fact is that financial impulses have been short-lived, which explains the recent volatility in the coffee market. It is also important to note that coffee on the NY stock exchange operates with a negative spread between March/24 and May/24, signaling an inflated short term and the expectation of improved future supply. Thus, the confirmation of more regular rains and less extreme temperatures in Brazil, indicated by meteorological maps and models, could stimulate downward corrections, taking away bullish strength from prices. So, in this scenario of high financial volatility and doubts about production, it is important for producers to adopt a more cautious stance, but without failing to take advantage of opportunities. The market, with the current high, is offering coffee sellers an opportunity.
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