Coffee focuses on financial realignment with ICE and Brazil’s 2022 crop


The Fed’s decision brought some relief to markets. The monetary authority raised the interest rate by 0.50%, as expected, and did not indicate either an acceleration of the upward movement to 0.75 points in its next meetings, as was speculated. But even with the signs of a softer landing, markets should seek some adjustment to the monetary tightening movement, with natural impacts on the financial flow. Coffee is currently hovering around 221 cents for the July/22 position on ICE US, signaling a consolidation of recent losses.

It is good to remember that in early February coffee exchanged hands for around 260 cents in New York. Since then, there has been a dismantling in long positions held by funds due to signs of an over-inflated market. Coffee happened to accumulate gains of more than 80% on ICE US. And even now, after the negative adjustment, the commodity still sustains a high of nearly 55% for the last 12 months. It is true that in these first 4 months of 2022 it has accumulated a decline of 1.8%, which reinforces the sign of exhaustion of the upward movement and indicates a behavior change in the international price curve of the beverage.

The Fed’s definition removes uncertainty, but confirms the change in the world financial flow. The general idea is that the new flow would hinder commodities because of higher interest rates, lower liquidity, and a stronger dollar. In this sense, there is still room for a slow and gradual correction in the commodity price curve. It is good to remember that commodities, energy and transport are the main villains in the escalation of world prices. Coffee has already incorporated this movement, which limits the short-term effect. However, not only on financial issues does the market depend, it is necessary to combine them with fundamentals. In this case, the inflection point is the advance of Brazil’s 2022 crop.