By: StoneX Intelligence Brazil, StoneX Intelligence Brazil
• Arabica prices dropped by 245 points (1.5%) in NY, ending Friday (25) at US₵ 162.60/lb.
• Cepea’s Arabica indicator increased by 0.2% to close at BRL 982.29/bag.
• Robusta prices increased by 1.4% to USD 1888/ton in London on Friday (25).
• Cepea’s Robusta indicator closed down by 6.4% at BRL 633.65/bag.
• Forecasted rains for December and optimism with the 2023/24 crop continue to weigh on prices.
• November export forecast points to high shipments. ▼
• Market final revision of USDA estimates, with a possible reduction of the estimated surplus in the global balance. ▲
• Production in Colombia in 2022 should be lower than expected. ▲
• USDBRL drops sharply, providing important support for coffee prices in the first half of the week. ▲
• Investors in the country should follow the negotiations for the Transition PEC.
• Copom decision and IPCA of November are highlights of the week's agenda. ▼
▼ Bearish factors ▲ Bullish factors
Coffee futures ended the last week with mixed results on their major trading exchanges amid mixed fundamentals as the market awaits further information on Brazilian production for the 2023/24 crop and the pace of global coffee consumption.
In New York (ICE), the Arabica coffee futures tried to extend the recovery recorded in the previous week, when the most active contract increased by more than 1000 points. By Wednesday (30), the Mar/23 contract increased by 715 points (2.9%), ending the session at US¢ 169.9, favored by a moment of a significant drop of 3.9% of the USDBRL. The regained appetite for risk in global markets, with agents looking for riskier assets while expectations of lower hikes in the US interest rates gained strength, favored the commodities complex in general, also providing some support for coffee.
Weekly intraday (most active contract) - Nov 28 to Dec 02
However, in Thursday's session (1), after prices approached the resistance at US¢ 175.00/lb points during intraday, the highest level in four weeks, a strong selloff pressure by speculative agents, still supported by the good prospects of rainfall in Brazil and betting on a large production next year, weighed on prices as of the end of Friday. In this scenario, coffee futures ended the period at US¢ 162.60/lb in New York, a weekly retraction of 1.5%.
In London (ICE Europe), Robusta coffee futures registered a slight increase, supported mainly by a significant recovery of the Vietnamese dong after the sharp 4.1% drop recorded in October. The most active contract (Mar/23) ended the period at USD 1846/t, gaining 1.4% over the previous Friday (25).
Robusta coffee quotes (USD/t) vs. dong/dollar pair (USDVND)
The Cepea's Arabica indicator marked a marginal reduction of 0.2% in Brazil, ending the period quoted at BRK 982.38/bag. On the other hand, Robusta coffee posted a significant advance of 6.4% during the week to end Friday at BRL 633.65, the highest level since mid-October.
The weather outlook in Brazil continues to contribute with the greatest weight to keep the Arabica prices under pressure in the stock exchange. The forecasts of almost constant rainfall in most coffee areas until mid-December should support a great crop in 2023/24. However, it is still early to make concrete statements, and it is necessary to wait for fruit expansion to see if this stage and the set of buds after flowering have been successful. It is worth mentioning that the hot weather and delayed rainfall for flowering this year, caused by La Niña, and reports from producers that flowering was not as good as it could have been under normal conditions, remain a point of attention.
Additionally, preliminary data released on Thursday (1) by the Brazilian Foreign Trade Secretariat (Secex) suggested strong results for coffee exports in November. The published document points to an export of 3.613 million bags of coffee last month, an advance of 23.6% compared to the 2.923 million recorded by Secex for November 2021. Now the market is waiting for Cecafé's official data, which should be released between the end of this week and the beginning of next week. If similar numbers are confirmed, showing an increase compared to last year and volume close to the average of recent years, the perception of a more comfortable supply in the international market this year tends to remain acting in a downward way for prices.
Market participants are also waiting for the biannual revision of the United States Department of Agriculture (USDA) estimates for the 2022/23 season, an important reference for the market, which may give signs of the Department's prospects for next year's crop. Preliminary reports already released by the USDA showed a revision of high estimates for Brazilian production from 64.3 million bags to 62.6 million, as well as downward revisions for production in Vietnam and Colombia. The details of the partial figures can be followed in our special report. Thus, in the final report, the USDA will likely reduce its surplus estimates for the current crop, which could support prices.
In Colombia, the production, which is already below the averages of previous years, may present a result even lower than expected this year. Roberto Velez, manager of the National Federation of Coffee Growers of Colombia (FNC), stated that the country's coffee production, which had been projected between 12 million and 12.2 million bags this year, should be below this level. Velez also anticipated that the permanence of excessive rainfall, due to the effects of La Niña, did not allow the flowering to occur as desired, which tends to impact production next year. From January to October this year, Colombian production accumulated 9.043 million bags produced, 10.1% below the same period last year and 17.3% below the average of the last five years.
Total production by Colombia (million bags)
Significant drops in the first half of the week contributed to strengthening coffee prices; the real/dollar pair ended last Friday (2) quoted at BRL 5.214, a weekly retraction of 3.6%. On the other hand, the dollar index registered a weekly drop of 1.4%, quoted at 104.5 points. In general, the feeling of greater risk appetite in global markets, amid the prospect of a reduction in the pace of increases in the basic US interest rate by the Fed in its next decision on December 14, and the reduction in the perception of fiscal risks in Brazil strengthened the domestic currency.
Abroad, expectations for a slowdown in the pace of adjustments in the United States monetary policy tend to continue favoring the risk appetite of agents in general. The release of the lower-than-expected Consumer Price Index (CPI) and PPI for October and activity indicators that generally corroborate the view of an economic contraction contribute to bets of lower intensity in the next Fed hikes. The US Bureau of Labor Statistics (BLS) is expected to release the PPI and CPI for November this Friday (9) and next Tuesday (13), respectively, indicators that global markets should react to before the Fed's monetary policy decision on December 14.
In Brazil, the formalization of the Proposal of Amendment to the Constitution (PEC) of the Transition with the National Congress favored the Brazilian currency. The manifestations of members of the transition government, in which they admit to being open to negotiating both the amount and the deadline for spending above the constitutional spending limit, cooled concerns about a deterioration in the country's public accounts.
This week, besides the follow-up of the negotiations, the agents should reflect the Central Bank of Brazil's Monetary Policy Decision of the Monetary Policy Committee (Copom) on Wednesday (7) and the release of the Broad Consumer Price Index (IPCA) of November by the IBGE. As a result, the basic interest rate (Selic) is expected to remain at 13.75% p.a., while the median projection for the IPCA is 0.55%, slightly lower than in October.
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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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