The coffee market remains agitated and volatile, testing highs on commodities exchanges. On the fundamental side, the drought in Brazil serves as support for prices. Financial rumors also contributed to the bullish volatility. However, the latest surge went a little beyond this logic, based on a strong buying movement by funds and speculators, perhaps due to fear of a squeeze on the December position.
Certified coffee stocks on the NY exchange have fallen again and totaled 837 thousand bags at the end of trading on September 18. It is worth remembering that this mismatch between the price on the exchange and the one asked in the physical market, distorting the arbitrage between the physicals and the futures, has been quite common in recent years. One sign of this deviation is that the price in the Brazilian physical coffee market has not kept up with the gains on the exchange in the same proportion.
After the negative adjustment in NY and London, both buyers and sellers remain on the defensive, awaiting definitions regarding the weather in Brazil. Buyers believe that coffee prices are already very high and hope that, with the return of rain, the market will erase part of the high. On the other hand, producers remain skeptical about the potential of the next Brazilian crop, believing that prices will continue to rise. The distance between the ends has increased, and the recent uptrend in NY widens this gap. However, there is a little more interest on the producer’s side, including that from origins that start a new cycle in the last quarter of the year, such as Colombia and Central American countries in the case of arabica.