On Friday the September coffee contract closed sharply down at 1.4190, down 495 points. It is now over 1,000 points off its high of 1.5480 reached on July 15th.
Over the past few weeks the coffee market has been influenced in a bullish way by two factors. First, coffee prices can be quite volatile during the Brazilian winter as the threat of cold weather pushes the market up and then as the threat passes without incident the market falls off. There have been some minor threats of cold weather recently which have passed with no damage to the trees. Second, there has been a truckers strike in Colombia which has hindered the transportation of coffee to the ports. On Friday the threat of frost in Brazil passed and the strike appears to be settled.
Please see the attached article for further information.
Today the market finished strong and at the highest level since August last year. September closes at 1.5215, up 450 points. September reached this mark in the five minutes before the closing bell with the highest volume for that period during the day. In the last twenty minutes September went up 150 points.
I have attached a Dow Jones article that talks about how the market is defying fundamental supply and demand dynamics.
On Friday the September coffee contract closed up 140 points at 1.4285. Four days in a row September had higher lows and higher highs than the day before. Friday’s close is the highest close since October 14, 2015. Ten out of the last thirteen days have been up days with September rising over 1900 points.
I have attached a short report regarding coffee. The report suggests that there is concern about the size of the current crop that is being harvested because of too much rain. But the report also suggests that next year’s crop should be a big one.
Plus I am sure that after the recent close call with freezing temperatures no one wants to sell or short the market.
Today we saw probably the biggest one day price swing in the most recent history.
By 4:40 only 25 minutes after opening July coffee rose over 500 points to 1.4500. Then July dropped dramatically to close at 1.3395 down 580 points which is very close to the low of the day. The high to low point swing was 1145.
I have attached several reports, some very brief, regarding production and weather.
Brazil is getting a lot of rain which is negatively influencing the harvest, but most recently there were reports of low temperatures, but no frost. Vietnam, Colombia, and Brazil Arabica coffees are expected to post gains in to the next crop years. Meanwhile even with Vietnam’s Robusta gains a shortage of Robusta coffee is expected.
July coffee closed up 745 points at 1.3965, only 20 points off the high. The market is up 1810 points in 6 days.
What is going on!
First, on the currency front, the dollar is weakening and the Brazilian Real is gaining strength.
This situation is just the opposite of what happened in 2015 when coffee dropped from over $2.00 to its current price level, but the market is certainly not in a position to now rise to the $2.00 level.
Second, just the opposite of one of the reasons for the market rise in 2014, there is now too much rainfall in Brazil which is effecting the harvest of the current crop.
After this big run up the market is due for a correction. This level is the highest that the market has closed since October 2015
This morning at 8:29 July coffee was flat at 1.23. During the next three minutes July rose 200 points on a volume of 1380 lots. The official opening of coffee at 8:30 is normally a little volatile, but this morning it was excessive. The normal volume during any five minute period is 150 lots. Currently, July is 75 points off of the high at 1.2425.
This 200 point jump is interesting since during the past 10 trading days July has traded within the narrowest range that I have seen in recent history, only 515 points from a high of 1.2595 to a low of 1.2080.
Since early March both the 40 and 60 day moving averages have gone up about 550 points to about 1.2475. July is currently trading below these averages. Three times since March July has aggressively gone up and come down.
Is today the beginning of another sharp rise which will be followed by a sharp fall?
On Monday, May 12, the July coffee contract rose 350 points to close at 1.3360. On Tuesday July tried to go higher, but lost 90 points. On both Tuesday and Wednesday July opened gap down meaning that it opened down from the previous day’s close. Those gaps were not filled by retracement during the day. On Thursday the slide continued with a loss of 615 points. Friday was a spinning top day with a close only 15 points different from the opening and a trading range of only 170 points.
What is going on?
The Brazilian Real has changed little over the past few weeks, but the Dollar has regained some strength which is bearish for coffee which is traded in Dollars.
Perhaps another reason for the decline is in two of the attached reports from Dow jones. One report is bullish because of the poor quality of the Brazilian Conlon coffee. One report indicates that the Colombian coffee crop is not to be as affected adversely as thought by the weather and the Broca, a beetle that harms coffee. And lastly, the Brazilian crop is expected to be 13% higher with the Arabica 2016/2017 crop up 21%.
Last Friday the July coffee contract broke through resistance at 1.30 and zipped up 350 points to close at 1.3360. Yesterday July tried to go higher and hit 1.3530 before closing down 90 points at 1.3270. Today July gapped down 70 points on the opening and continued down to close at 1.3010, down 255 for the day.
Technicians look at points of resistance as points of support if the market breaks through the resistance and turns south. For three days last week July tried to push through 1.30. On Friday it was successful. Today, as July was coming down it tried to break through 1.30, but could not close below it.
It will be interesting to see if support holds. If it does not hold, July could retrace it path to the 1.19/1.20 range where it will run into support
Of the past seven days we have had four strong up days when the market was up over 1000 points. Yesterday was a spinning top day with market closing very close to the opening with a 30 point change. But yesterday it tried to go down and met support at 1.2775. This morning at the opening the July coffee contract gapped down 120 points, but has recovered and is now trading at 1.2925, down 80 points.
Both the Brazilian Real and the Dollar have recovered a little from their recent lows, so it appears that the currency influence has stabilized a bit.
Technically, if we break through resistance at 1.30/1.32, we could see a higher market. The attached article discusses this situation a little further.
Since April 20, 2016, we have seen six down days and one up day. On Friday July closed at 1.2150, down 55 points.
Since January 21 the Brazilian Real has strengthened drifting upward and is now at the same level as last July.
Also, since mid-January the Dollar as weakened drifting downward.
Last Friday the gap between the two currencies was about equal to the gap last summer.
Although world stocks are low, the fact that Brazil expects to harvest a pretty big crop this year seems to be the over-riding thought which is sending the market down and the market is only about $0.10 less than where it was in late August 2015.