December Green – Updated 09/02/2015

September 2, 2015

Good Morning

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.