By: StoneX Intelligence Brazil, StoneX Intelligence Brazil
• Arabica prices down by 905 points (4.07%) in NY, closing the week at US₵ 213.35/lb.
• Cepea’s Arabica indicator down by 1.9% in the week to BRL 1,275.71/bag.
• Robusta prices down by 1.5% in London to USD 2226//t.
• Cepea’s Robusta indicator high by 0.8% to close at BRL 737.44/bag.
• Noises from the macroeconomic field put pressure on coffee prices ▼
• Certified stocks high by 6.8% in the week ▼
• Coffee stocks at US ports (GCA) high by 2.9% in July ▼
• Concern about the possibility of lower-than-expected production in 2022 ▲
• Dry weather in the coffee belt could affect coffee flowering ▲
• USDBRL appreciation contributes to pressuring coffee prices ▼
• Increased global risk aversion has affected demand for riskier assets ▼
• Jackson Hole Symposium, PMI forecasts and IPCA-15 are highlights of the week
▼ Bearish Factors ▲ Bullish Factors
Read the latest coffee special report - Can certified coffee stocks reach zero?
Over the past week, macroeconomic noises have again put pressure on coffee prices. As will be addressed in the specific session on foreign exchange, concerns over a possible global economic recession and inflation supported a sharp rise in the USDBRL during the week, which contributed to pressuring coffee prices.
In addition to currency factors, the rise in coffee stocks at US ports, released by the Green Coffee Association on August 15, and the increase in pending stocks and, consequently, certified stocks, acted bearishly for coffee. In New York, coffee ended last Friday (19) with the most active contract (Dec/22) at US₵ 213.35/lb, a weekly increase of 905 points (4.07%).
In London, the Robusta coffee market, which retreated by only 1.5%, was lower due to the continued decline in Robusta certified stocks. The most active contract (November) closed the week quoted at USD 2226/t.
Following the trend observed in the international market, the Arabica coffee prices in the domestic market ended the week lower, but with less intensity, due to USDBRL appreciation. As a result, Cepea's Arabica indicator ended Friday's session (19) at BRL 1,275.71/bag, a decrease of 1.9%. On the other hand, Cepea’s Robusta indicator ended high by 0.8% to close at BRL 737.44/bag.
Still in the spotlight, Arabica certified stocks have reversed their trend and started to build. However, as the special report on stocks mentioned, current market conditions do not justify the certification of new coffee from origins. Therefore, the outstanding stocks and those being graded are probably recertified coffees.
Last week, certified stocks increased by 6.8% to just over 610,000 bags. There are over 220 thousand bags pending grading, and the pass rate has been over 85%. Therefore, certified stocks tend to increase in the coming days as these coffees are certified.
Weekly intraday (most active contract) – August 15-19
In addition to certified stocks, agents reacted to the 2.9% increase in green coffee at US ports in July, which the Green Coffee Association reported on Monday (15). According to the report, stocks totaled 6.22 million bags, 2.9% higher than in the previous month and 2.5% higher than in the same month in 2021. The monthly change in July was higher than the average change in stocks over the last five years for the month, which was 2.4%. Despite this, these stocks are 6.5% below the last 5-year average for the month, which is 6.66 million bags.
Coffee stocks at US ports - GCA (million bags)
Recently, there have been comments that the Brazilian production in 2022/23 would be lower than market expectations. As a result, there has been a significant delay in the start of the Brazilian crop and lower volumes traded. Some of this can be justified by the limited availability of labor in some regions and the condition of high differentials. Still, some of it could be linked to lower-than-expected production. StoneX has not yet conducted a specific study to assess these conditions, but it is worth noting that this could be a bullish factor for the market in the coming weeks.
In addition, the weather market should continue to be on the radar. Some regions in the South of Minas and Mogiana have recently received around 35mm of rainfall. According to reports, the volume was enough to start the flowering process in some crops, but still at a small percentage, and larger volumes are still needed for the main flowering to occur in these regions. Despite the observed volumes, the models do not indicate substantial rainfall volumes for the next 15 days. In addition, it is important to remember that the CPC/IRI NOAA report pointed to a probability above 80% for the maintenance of La Niña. This phenomenon has been associated with the delay of rainfall in Brazil in the last two years. Therefore, there is the possibility of continued dry weather in the coming weeks, which could impact coffee flowering and have bullish content for New York.
The USDBRL appreciation contributed to pressure on coffee futures last week. Amid an environment of greater pessimism in global markets, the real/dollar pair appreciated by 1.9% in the week, closing at BRL 5.169. The dollar index showed an intense increase of 2.4%, ending Friday (19) at 108.0 points.
Last week, investors reacted to the speeches made by members of the Federal Reserve, reinforcing the monetary authority's commitment to fighting inflationary acceleration in the country firmly. The speeches increased the view that the American central bank will continue with a significant increase in the basic interest rate (in this case, 75 basis points) at its next meeting, which increased the attractiveness of investments in American assets. This week, the market should follow the Jackson Hole symposium, where leaders of several monetary authorities will discuss the strategies for monetary policy in the coming months. Jerome Powell's speech during the symposium should only take place at the end of the week, which tends to make investors remain more cautious.
Worrying indicators in major European powers also negatively affected risk appetite last week. Germany revealed that the country's Producer Price Index (PPI) accelerated by 5.3% in July, bringing the 12-month accumulated figure to 37.2%, the highest level ever recorded in the historical series. In the UK, the Consumer Price Index reached 10.1% in July on a 12-month accumulated basis, above analysts' estimates of 9.8% and the highest level since 1982. Thus, it will be important to follow the August PMIs of the countries this week, which will show whether the industrial and service sectors continue at an expansionary level or are cooling down.
In Brazil, the highlight is the National Broad Consumer Price Index 15 (IPCA-15) for August, with projections of deflation of 0.81% due to the subsidy measures approved in Congress, which could bring some optimism concerning stimuli for the country's economic activity. Additionally, this week's national network interviews of the presidential candidates should move the political scenario and may contribute to more volatility.
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Brazil could still deliver a record arabica crop, but the bigger question for growers is what the next season holds. Out of season flowering and the swing of El Niño have put the spotlight on the rains still to come.
Daily coffee report
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