Coffee recovers 250 cents and tries to consolidate gains on ICE US

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While coffee tries to consolidate new gains on ICE US, the dollar tests new supports against the real and already sees more closely the previously distant level of BRL 5.00. This inverse relationship is typical in commodities, but it has not been normal in these times of pandemic, high liquidity and strong global financial movements. Here in Brazil, physical coffee prices are still very firm and close to the highs, especially in the case of the best cups of arabica. These descriptions typically follow both the dollar and ICE swings.

The recent rally on ICE US led the May/22 position to test the 260-cent line and changed the coffee performance level in the international market. The new gains are linked to the fall in stocks certified in the NY exchange. Very low stocks on ICE US raise fears of squeeze and bring to the surface fears of short-term shortages.

It is worth noting that at the end of the trading session on February 16, there were only 1.028 million bags of coffee inside of accredited warehouses. It is the lowest volume in 22 years. Although the line of 1 million bags has not yet been broken, as expected, it generates insecurity in commodities exchange operations and helps to support prices.

Outside of the exchange, there are logistical difficulties and a very slow flow in shipments. However, these problems have been overcome, partly, by a more restrained demand and the attempt by industries to extend their stocks. In any case, the feeling of tight supply prevails, but without the same intensity and consequences of the ICE movement. Green coffee stocks in the United States, for example, dropped 37.85 thousand bags and totaled 5.79 million bags at the end of January, according to GCA. It is the fifth consecutive month of decline.

It is also good to pay attention to the negative spread of the future curve of the price of arabica coffee on the NY exchange. Shorter positions are still much more valued than longer positions. This reinforces the perception of tightness in the short term, as well as projects the perspective of improvement in future supply.

The conflict between Russia and Ukraine should directly impact the price of oil and the CRB index, indirectly influencing coffee. Oil has already gone up around 22% in the first few weeks of 2022, supporting the 13% gains in the CRB index. The second position of arabica coffee on ICE US accumulates a high of 11% at the beginning of the year. In the comparison of the last 12 months, however, coffee is a positive highlight, sustaining an appreciation of 80%, well above oil (49%) and the CRB index (38%).