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TECHNICAL ANALYSIS OF ARABICA COFFEE
Last week, ICE US coffee futures closed higher at 118.05 ct/lb.
Hopes for a vaccine are fuelling the markets, and Pfizer and Moderna have announced very encouraging results. Many countries, such as the United States, Germany, Spain, and others, are already preparing vaccination campaigns. The pandemic continues unabated, with more than 58 million cases worldwide and more than 1.382 million deaths. The United States is the most affected country with more than 256,000 deaths and more than 12 million cases.
The hope of a vaccine, as well as the prospects of a massive stimulus package, is driving the markets. The dollar is still low and in a downward trend, the DXY closes at 92.392.
The end of the year marks the arrival of production from Central American countries. Last week, the powerful Hurricane Iota hit Central America and Honduras, an important coffee producing region. Colombian production is expected to remain stable at 14.1 million bags, thanks to the replanting of rust resistant coffee trees. 83% of Colombia's total area would have been renewed with these varieties.
The price of Arabica coffee is also benefiting from concerns about the supply of Robusta coffee. Vietnam, the largest producer of this type of coffee, is encountering very heavy rains following the passage of several typhoons, causing fears of a smaller harvest and smaller bean sizes.
In Brazil, forecasts for the next harvest are still down due to the effects of the drought this summer, particularly in Minas Gerais. Rainfall in the Brazilian coffee belt in October was below normal, and also in November after 3 weeks. In addition, Arabica coffee trees are on a biannual cycle of small and large harvests, so the next crop will be smaller anyway.
According to the International Coffee Organization, world coffee exports in 2019/20 fell by 4.9% to 126.9 million bags. Production in 2019/20 is estimated at 168.84 million bags, down 2.5%, and consumption fell by 0.9% to 167.59 million bags. This would lead to a surplus of 1.24 million bags.
WEATHER IN BRAZIL
90% of Brazilian coffee is grown in 4 regions: Minas Gerais, Espirito Santo, Sao Paulo and Parana.
Rainfall was below normal in October in the Brazilian coffee belt. The rains were late in coming and irreversible damage is feared for the next harvest. The rainy season has now begun. Last week the rains were below normal. It fell about 50 mm. After 3 weeks, the rainfall over the month of November is still below normal. According to the forecast, next week the rains will also be below normal, with only 20-30% chance of rainfall above 50 mm.
ICE US CERTIFIED COFFEE STOCKS
Coffee stocks are up to 1.236 million bags of 60 Kg, compared to 1.198 the previous week. ICE US stocks of Arabica coffee are below the five-year average. The low stocks may provide some support to the coffee price on futures contracts.
THE DOLLAR
The DXY index representing the Dollar against a range of foreign currencies closed last week down to 92.392, and the trend is still bearish. Joe Biden, who will be invested on January 20, spoke of a $3 trillion support plan. Forex traders are anticipating an increase in the money supply. Treasury Secretary Steven Mnuchin has called on the FED to return unused funds from emergency aid programs for the coronavirus crisis. The FED has decided to do so, although it considers this decision premature. Last week, this did not cause much movement in the currency market, which remained relatively calm.
The previous week, the Brazilian Real closed higher at 0.1855. The fall of the Dollar benefits the Real. The BRL/USD pair is positively correlated with coffee futures prices. A weak Real increases the competitiveness of Brazilian producers and encourages them to export.
COMMITMENTS OF TRADERS
The weekly COT (Commitments of Traders) report of the Commodity Futures Trading Commission (CFTC) shows all the positions opened by all market participants. The COT report is published on Friday, and reflects the open positions on Tuesday of the same week. It shows the position of commercial traders (producers, commodity buyers, ...) but also non-commercial (speculators).
The net positions of speculators on the futures markets are particularly interesting to observe.
The speculative net position on the coffee futures markets is down this week to 24.006 K instead of 28.021 K.
TECHNICAL ANALYSIS OF ARABICA COFFEE
Last week, ICE US coffee futures closed higher at 118.05 ct/lb.
Hopes for a vaccine are fuelling the markets, and Pfizer and Moderna have announced very encouraging results. Many countries, such as the United States, Germany, Spain, and others, are already preparing vaccination campaigns. The pandemic continues unabated, with more than 58 million cases worldwide and more than 1.382 million deaths. The United States is the most affected country with more than 256,000 deaths and more than 12 million cases.
The hope of a vaccine, as well as the prospects of a massive stimulus package, is driving the markets. The dollar is still low and in a downward trend, the DXY closes at 92.392.
The end of the year marks the arrival of production from Central American countries. Last week, the powerful Hurricane Iota hit Central America and Honduras, an important coffee producing region. Colombian production is expected to remain stable at 14.1 million bags, thanks to the replanting of rust resistant coffee trees. 83% of Colombia's total area would have been renewed with these varieties.
The price of Arabica coffee is also benefiting from concerns about the supply of Robusta coffee. Vietnam, the largest producer of this type of coffee, is encountering very heavy rains following the passage of several typhoons, causing fears of a smaller harvest and smaller bean sizes.
In Brazil, forecasts for the next harvest are still down due to the effects of the drought this summer, particularly in Minas Gerais. Rainfall in the Brazilian coffee belt in October was below normal, and also in November after 3 weeks. In addition, Arabica coffee trees are on a biannual cycle of small and large harvests, so the next crop will be smaller anyway.
According to the International Coffee Organization, world coffee exports in 2019/20 fell by 4.9% to 126.9 million bags. Production in 2019/20 is estimated at 168.84 million bags, down 2.5%, and consumption fell by 0.9% to 167.59 million bags. This would lead to a surplus of 1.24 million bags.
WEATHER IN BRAZIL
90% of Brazilian coffee is grown in 4 regions: Minas Gerais, Espirito Santo, Sao Paulo and Parana.
Rainfall was below normal in October in the Brazilian coffee belt. The rains were late in coming and irreversible damage is feared for the next harvest. The rainy season has now begun. Last week the rains were below normal. It fell about 50 mm. After 3 weeks, the rainfall over the month of November is still below normal. According to the forecast, next week the rains will also be below normal, with only 20-30% chance of rainfall above 50 mm.
ICE US CERTIFIED COFFEE STOCKS
Coffee stocks are up to 1.236 million bags of 60 Kg, compared to 1.198 the previous week. ICE US stocks of Arabica coffee are below the five-year average. The low stocks may provide some support to the coffee price on futures contracts.
THE DOLLAR
The DXY index representing the Dollar against a range of foreign currencies closed last week down to 92.392, and the trend is still bearish. Joe Biden, who will be invested on January 20, spoke of a $3 trillion support plan. Forex traders are anticipating an increase in the money supply. Treasury Secretary Steven Mnuchin has called on the FED to return unused funds from emergency aid programs for the coronavirus crisis. The FED has decided to do so, although it considers this decision premature. Last week, this did not cause much movement in the currency market, which remained relatively calm.
The previous week, the Brazilian Real closed higher at 0.1855. The fall of the Dollar benefits the Real. The BRL/USD pair is positively correlated with coffee futures prices. A weak Real increases the competitiveness of Brazilian producers and encourages them to export.
COMMITMENTS OF TRADERS
The weekly COT (Commitments of Traders) report of the Commodity Futures Trading Commission (CFTC) shows all the positions opened by all market participants. The COT report is published on Friday, and reflects the open positions on Tuesday of the same week. It shows the position of commercial traders (producers, commodity buyers, ...) but also non-commercial (speculators).
The net positions of speculators on the futures markets are particularly interesting to observe.
The speculative net position on the coffee futures markets is down this week to 24.006 K instead of 28.021 K.