Yesterday September moved to a low of 1.3695 which is the lowest low since June 28 and break through of the support level of 1.40, but the bears could not hold. September reached a high of 1.4325 and then closed at 1.4210 up 170 points.
On the opening this morning September gapped up to 1.4230 and then proceeded to climb 1.4390 by 8:30. Currently September is trading at1.4155 down 55 points. The Dollar and the Real are both up so the market is not influenced by currency.
Question: Will 1.40 support hold again? If it does, this may encourage the bulls on Monday.
Today September coffee closed down 75 points, at 1.4040. Trading brought September down below 1.40 for the fourth time in the last eight trading days without a close below 1.40 which means that there is good support around 1.40. As the attached article indications the cold weather in June may have reduced Brazil’s output by a Million bags. Also other countries are having smaller crops. But the opportunity for some more cold weather could be keeping the sellers away
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.
September coffee opened up 200 points. Then at 8:35 September jumped another 100 points. Currently it is trading at 1.4895 up 485 points.
The weather in Brazil is favorable for the harvest and no cold weather is in the forecast. Both the Dollar and the Real are reasonably flat.
Here is a report from Morgan Stanley from Friday.
Early buying was met with disinterest as Americas based traders strolled into their offices with little volume to greet them. The low of 141.60 traded during the opening minute, and the rest of the day would effectively feature a 200 point range. A mid-day high of 144.30 would prove to be an anomaly for much of the session as prices seemed magnetically drawn to the 143.50-143.85 area for 2 hours as participation waned. However, end of day buying emerged posting a marginal new high for the day during settlement, ending an inside day on a particularly positive note. Early focus was on the US Non-Farm Payrolls number, with overnight optimism pervading other markets as expectations for a positive monthly performance reigned. Ultimately, a better than hoped for +287k number would provide a short term boost to both the DXY, and more perplexingly for many, the BRL. With a positive reaction to Brazil’s 2017 fiscal deficit target, the BCB halting Fx reverse swap auctions today in an effort to reduce their inventory of such swaps, and positive indications of US consumer health adding to sentiment for some EM currencies in the absence of expectations of a Fed rate hike, the BRL was able to stem 5 previous sessions of weakening. In trying to gauge the most important of factors, it is worth noting the previous 5 sessions had also been concurrent with BCB auctions, which had injected a reported US$500m a day in USD demand while pressuring the local BRL. The COT Net-Non Commercial stands at 32792, within expectations, and remains shy of the October 2014 highs.
BCB is Brazilian Coffee Board
It looks like Fx reverse swap auctions are causing the bullishness!!!
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%.