Today, December closed up 355 points at 1.2430, the highest close since August 31st. Neither the Dollar, the Real, nor the weather appeared to have changed much from yesterday to today. And I have not seen any bullish crop reports.
So what happened? For six days the market has tried to go higher or tried to break through 1.2250. At 12:45 with about twice the normal volume December climbed to 1.23. During the next five minutes with about five times the normal volume December went up another 200 plus points to 1.2525. December then retreated to 1.23 before a close above 1.24. Is this the break out for which the bulls have been looking?
The attached article states that China will grow its consumption of coffee significantly over the next several years as consumer spending increases on “luxury” crops such as coffee.
Today December coffee closed down 60 points at 1.2075. The last two days have represented two candlestick spinning top days. Also, each day the daily highs have been lower than the previous day and the daily lows have been higher than the previous lows. In other words they have been inside trading days. Clearly, the market is consolidating. There is good support around 1.15 and good resistance above 1.2250. A break through of either one of these levels could mean that we are setting a new short term trend.
On a long term basis the trend is still down.
The Dollar is not losing strength. The Brazilian Real is not gaining strength. Rain, although light, is returning to the Brazilian coffee growing areas. However, the world supply of coffee is still low.
Consolidation should continue for a while until more convincing information is available that leans strongly in one direction.
On Monday the December contract reached an interim day high of 1.2685, but closed down 25 points. Yesterday December closed down 350 points at 1.2080.
This morning we made a life of the contact low at 1.1915. We have recovered somewhat since then to 1.1970 as I write.
Some of this decline may be caused by an overall decline in commodities and an anticipated softness in world markets, but the coffee market is still also being influenced by currencies, especially the US Dollar and the Brazilian Real. A year and one half ago the Real was at .51. Last week it was down to .28. Today it is down to .267. The Real has lost almost 50% of its value. Meanwhile the Dollar has gone from an exchange rate of 80 a year and one half ago to a high in January of 100. It is now at 95. With Dollar gaining value and the Real loosing value the Brazilian coffee producers are encouraged to sell. And with them encouraged to sell, buyers are not necessarily encourage to buy, thus a price decline.
In addition there has been continued talk about the small crop in Brazil because of the drought earlier this year. The drought has had two effects on the crop: the production of fewer beans and the production of smaller beans. The later has not received much press so I thought that I would comment. Small beans mean more beans per bag and thus fewer bags. Therefore the number of 60 kilo bags in the current Brazilian coffee crop is reduced because of fewer beans and smaller beans being harvested.
The industry still does not have final crop quantity, but currency valuations continue to have a greater influence.
For those of you who are short this is good news, otherwise, well, it is not good news. Today, once again coffee is down significantly. By 4:30 AM December was down 300 points. At 10:15 there was a good rally up 300 points, but it was not sustainable. December slid down the rest of the day to close at 1.2170, down 470 points. The market is now down nearly 2,000 points in four days, or 15+ percent.
Will it rally tomorrow? The stock market dropped big time today, but came back somewhat to close at its lowest low since February 2014.
First, we had strong Dollar and weak Brazilian Real, then a weak Vietnamese currency, and now China. All areas are now being impacted. Even Gold which rallied a little last week fell today.
Today was a big down day. One importer that I talked today characterized the market as “in the Tank”. I guess that is fair. Today, December closed down 600 point at 1.2645. So in the past fourteen days the market has gone up 1300 + points and down an equal amount which is a 10% swing in both directions. Can it make up its mind? Obviously not!!! Fundamentals versus Currency!!
Once again the attached article mentions currency as the reason for the market decline.
But this market does have a tendency to go dramatically in one direction and then, the next day, go in the other direction. Will Monday be an up day?
Today was another correction day. We have now had three big (over 400 points) correction days in the last six days. After a big up day on the eleventh, we have seen December go down 510 points, up 535 points, and today down 425 points to close at the lowest level since the seventh, 1.3480. The reason for the dramatic swings is that traders and producers can not figure out if currency valuations or Brazil’s current crop is more important.
The attached article from Dow Jones highlights two new players in the currency game, Colombia and Vietnam, whose currency is also loosing value, just the Brazilian Real, against the US Dollar.
I just talked with someone whose family grows coffee in Brazil. His comment is that the crop is expected to be 44MM bags which is the lowest estimate I have heard. I am sure that the bulls and the bears will continue to battle it out for another month or two when the final numbers are in for this year’s crop and the flowering begins again in Brazil.
The second article is about the internet and domain suffixes. Coffee is now available. Maybe I should change my web site to www.fieldcoffee.coffee?
On July 28th the September contract hit its all time low of 1.2025. Since then, September has wandered up to close today at 1.2580, up 100 points on the day. Although the price of coffee is still strongly influenced by the value of the Dollar and, even more, by the value of the Dollar and the Brazilian Real, sooner or later fundamentals must kick in.
I am attaching a Dow Jones article that suggests that the current harvest could be quite smaller than expected. This article is the first that I have heard about a small crop in Brazil. And then again it could be just someone who is long and wants to get out at a higher price. And on the other hand there are a whole lot of people who are short and need to get out if this crop report is correct. Hold on to your hat, we could have another ride upwards.
On Friday the September coffee contract closed nearly unchanged at 1.2840 down 45 points. The contract is now 475 points off its low and has now developed two spinning top candle sticks in a row . The market is looking for direction.
I have attached a rather detailed market report. Although the large amounts of shorts suggest the opportunity for a market rally as the traders cover their shorts, there are other indications that the market will go down.
The market remains below the 40 and 60 day moving averages and the technical tread is still down. There are also some reports that the current crop in Brazil after the drought is bigger than expected, thus putting additional pressure on the market.
July 14, 2015
Today September coffee closed up 255 points at 1.2880.
I am attaching a Dow Jones article about the coffee market. It says, and I agree, that the market looks like it is building a base in the range of 1.25 to 1.30. The financial situation in Greece has some influence on the market as well as the weather in Vietnam and Brazil, and values of the Dollar and the Real, but all of these factors seem to be built into today’s market which is still four to six cents below the 40 and 60 moving averages respectively.
Although the chance of frost in Brazil is still a possibility, although remote, the weather forecast for the next few weeks is for normal temperatures.