Coffee tumbles and flirts again with 100 cents on ICE

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The coffee market tests supports and accumulates losses of 22% on ICE Futures US in the first days of 2020. It is worth noting that New York arabica has already erased 87% of the last rally on ICE in NY. Thus, the March/20 position, which had risen from 95.80 to 142.45 cents per pound between October 16 and December 17, is currently trading at around 102 cents. It is a considerable loss that characterizes the movement no longer as a simple adjustment, but as a drastic change in direction.

Weaker fundamentals triggered the corrections, after December’s exaggerated high. The improvement in the pace of shipments of mild coffees (Colombia and Central American countries) and more aggressive sales of Vietnamese robusta bring relief. The world industry is well bought from Brazil, which also ends up weighing against prices. It is good to remember that the country shipped about 62 million bags of coffee in the last year and a half (42 million in the 18/19 season and 20 million bags in the first half of 19/20 – July through December 2019). And looking ahead, the market expects a new record crop in Brazil in 2020.

After the adjustment, New York arabica became more vulnerable to other markets. Now it falters in the face of the pessimism caused by the spread of coronavirus. Like Sars, the coronavirus has negative implications for the Chinese and world economy, which negatively affects global markets, especially commodities. Oil and the CRB index retreat, dragging coffee downwards. In 2008 SARS led to a 2% decline in the Chinese GDP. Preliminary ideas for 2020 are that the coronavirus will lower China’s GDP by 0.1% to 0.5%, with the most pessimistic pointing to 1.2%. A wide-ranging and unclear scenario. In any case, there is some negative implication on the Chinese and world economy, raising caution and a risk aversion movement, which favors the dollar and plays against stocks and commodities.

New York arabica ended last Wednesday (29) at 102.60 cents, flirting with the dangerous psychological level of 100 cents. The bad mood of markets made the March/20 contract change from the range of 110 to 115 cents to nearly 100 cents, with a chance of breaking this important reference should the epidemic keep advancing rapidly. On the one hand, a virus control signal must bring markets back to normal, which would help coffee to react, leading the market to converge towards the previously balanced level.

In the domestic physical market, prices fell again, following the fall on ICE. Hard arabica with 15% of defects in the south of Minas fell to BRL 470 a bag. With the losses, the market came to a halt, with buyers and sellers more distant, which hinders negotiations.