The ICE US coffee rally is supported by firm fundamentals, driven by more positive financials and the breach of important technical bullish levels. The gains in oil, which is back above the level of USD 100 a barrel for Brent type, help push the CRB commodity index, which flirts with the 300-point level and serves as a bullish trigger for coffee. The fall of the dollar against the real also favors the rise of arabica in New York. In addition to these financial factors, the market also reflects the tightening of the physical coffee supply. The decline in the production of milds in Colombia and robusta in Vietnam, at the end of the 21/22 business cycle, and the indications that this year’s Brazilian arabica crop may be lower than initially expected, serve as fundamental support.
On the technical side, coffee broke through important resistances and gained strength, with the Dec/22 position testing the level of 240 cents in New York. If it consistently beats this important level, it will regain bullish strength. But if it fails to surpass this resistance, there will be room for some profit-taking and correction in the price curve.
It is important to note that the evaluation of the early blossoming of arabica for Brazil’s 2023 crop, albeit promising, brought more pessimism than optimism, since weather maps do not indicate rains for Brazilian coffee areas over the next few weeks, which increases the risk of abortion. Thus, the first impression regarding the next Brazilian crop is not as positive as the market expected. And this also serves as support for prices.
International physical prices follow ICE U.S.
Coffee soars in the international physical market, following gains on ICE US. Colombian Suprema mild is indicated at 286 cents and Ex. Epoca at 282 cents FOB Buenaventura, accumulating nearly 10% gains in August. The lower physical availability at the end of the season, due to excessive rain caused by La Nina, between January and May this year, contributes to the appreciation of Colombian coffee. FNP indicated the production between Oct/21 and Jul/22 of only 9.9 million bags, which corresponds to a 12% decline from the same period of the previous business season.
In comparison, Brazilian fine cup with screen 17/18 is pegged at 231 cents (flat price) and MTGB good cup at 217 cents FOB Port of Santos. SHG Honduran washed coffee is pegged between 247 and 253 cents FOB Puerto Cortes.
In relative terms, there were no major changes in the price curve, based on ICO prices against the second contract on ICE US. Colombian milds continue with highly valued differentials. Central American coffees also support a slight appreciation, finding support in the fall in production, typical of this period of the year. Brazilian arabica, on the other hand, is showing an appreciation, consolidating a relative level.
Robusta has slightly slowed down after the strong gains accumulated in the last months. Irregular rain in Vietnam, with some regions either with excess or shortage, ended up reducing crop productivity, which leads to a downward revision in the size of the 21/22 crop. Besides, producers greatly accelerate sales in the current season, which helps to significantly reduce availability in the last months of the business cycle (Oct/Sep). And Vietnamese grade 2 FOB Hochiminh was up USD 2,291 a ton, up 25% from August, which helped to boost the prices of robusta on the London terminal.
Brazilian conillon 13 up flat price is at USD 2,458 a ton at the port of Vitória. And the reference for Brazilian conillon CIF Europe is around 2,623 euro/ton, still well above Vietnamese grade 2 coffee, 2,307 euro/ton CIF Europe. Even so, demand for Brazilian conillon has grown, including business reports. And that made the domestic industry react, raising the price practiced in the domestic physical market.