Coffee finds strength in the fall of the dollar and climate fears to break resistances and test new highs on ICE US. Intraday volatility and fluctuations between trading sessions remain high. And so does the concern over the climate in Brazil. The reduction in rainfall and episodes of extreme heat generate apprehension, which translates into greater protection on the part of funds, which expand their net long portfolio with coffee, in a typical “weather market” movement. Thus, the Mar/24 position goes to 190 cents, testing new tops at the New York terminal.
Despite positive technical indications, inconsistencies continue because of divergent long-term signals. It is important to highlight that coffee in NY keeps working with a negative spread between March/24 and May/24 on the NY stock exchange, which signals an inflated short term, as well as the expectation of a decline in future prices given the improved supply. The increase in volatility reinforces the lack of consistency in the fluctuations. In this sense, it is important for growers, particularly, to pay close attention to sales opportunities.
Keeping an eye on the climate in Brazil
The week will be mostly dry, at least until Sunday. There is a small chance of light and brief rainfall. The combination of low moisture with high temperatures increases production concerns in Brazil, which justifies the firmness of prices. Traders seek greater climate protection, expanding their net long portfolio.
But the rainfall is expected to return with force next week, with greater volumes expected for the south of Minas Gerais, Cerrado, Espírito Santo, and Bahia. The cumulative precipitation until Sunday (24) must range from 35 to 65 mm, reaching 85 mm in some locations. It is very important for coffee crops to confirm such forecasts. However, other models disagree with the forecast of a week as wet as that indicated by GFS.
Temperatures are expected to remain above normal for the next 10 days, with a heat peak next weekend (15 to 17) in Bahia and northern Minas Gerais. In the week starting on the 18th, increased moisture must lower temperatures.
The confirmation of good rainfall next week along with milder temperatures in Brazil tends to harm coffee prices in both New York and London. Especially if the favorable climate extends into the first months of 2024, giving climatic support for arabica graining and resulting in a more positive reading for Brazil’s 2024 crop, which would also be closer.