Coffee loses important supports and sinks into negative ground on ICE US. The market has weakened due to the oil and CRB index losses and moved the opposite way of the dollar. On the fundamental side, it keeps facing the resistance of slow demand in the physical market, with buyers attentive to the good progress of Brazil’s 2023 crop blossoming. The market loses important support, which would confirm the break in the sideways behavior and the downward shift of coffee performance on the NY stock exchange.
The Dec/22 position is already trading below 210 cents and, as a result, not only moves negatively away from the old reference of 220 cents, but also gets closer to the psychological level of 200 cents. The negative spread of the ICE US coffee futures price curve has shortened, with the difference between Dec/22 (spot contract) and Sep/23 (new crop) positions dropping to 15 cents after having recently reached -22 cents. The fall of coffee on ICE US forces a realignment in the spread curve between maturities, which tends to a flatter behavior as the next Brazilian crop approaches.
Another pressuring factor is the beginning of a new production cycle in Colombia, Central America, and Vietnam. The production and flow of shipments of these important origins had been falling for the last few months, which helped to create the scenario of tighter supply. ICO data show world shipments of only 8.83 mln bags in August 2022, which corresponds to a 3.7% decline from the same period last year. In the 21/22 season (Oct/Aug), coffee shipments totaled 118.86 mln tons, down 0.3% from the same period in the previous season.
But these important origins begin a new business cycle now in October, which tends to increase the available supply from the next few months. The high price on ICE US, the appreciated dollar, and the shadow of a full crop in Brazil in 2023 end up interfering with the stance of sellers, which also contributes to the negative price curve.