Coffee tests line of 245 cents, does not sustain gains, and falls to nearly 230 cents on ICE US

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Coffee prices remain highly valued, reflecting concerns about the lack of rain in Vietnam, which threatens the 24/25 crop of the world’s main robusta origin. The delay in the arrival of the Brazilian crop, particularly conillon, which is a key point in the global coffee supply throughout the year, intensifies the signs of scarcity and drives the upward movement in prices. This fundamental momentum was amplified by aggressive financial fund flows and short-covering positions.

On ICE US, the July/24 contract, which has the greatest liquidity and serves as a reference for price formation in the world market, retreated after surpassing 245 cents and registering gains of 30% in just over two weeks this April. But it ended up moving away from the highs and is trading this Thursday morning (18) at 231 cents. Despite the decline, it still maintains a gain of 24%, which represents a significant change in the price curve, generating tension among buyers, agitation among sellers, and questions about the consistency of this high.

Amid this turbulent scenario, funds increased their net long position in coffee futures contracts to more than 73 thousand contracts. Contrary to the shortage of supply, certified stocks on the NYSE continued to increase and reached 631 thousand bags at the end of the trading session on April 17. The improvement in arbitrage, with the increase in prices, and the rising availability of arabica, justifies this movement of coffee toward accredited warehouses of the NY stock exchange.

Some points continue to draw attention to the construction of earnings, especially on ICE US. Firstly, coffee maintains its upward trajectory even in the face of the appreciation of the dollar against other global currencies. Furthermore, after the expiration of the May/24 options, it is observed that the call coverage movement also extends to longer positions such as July/24 and September/24. This movement appears to be more related to concerns about cash flow than the intrinsic fundamentals of the coffee market. In practice, traders are seeking to mitigate the exposure of their portfolios due to emerging risks associated with increasing market volatility.

Even though the market appears excessively stretched, a more significant downward shift in the price curve will require confirmation of changes in the supply scenario. This could include the return of rains in Vietnam or the arrival of new coffee crops from Brazil and Indonesia in the market. The crop from these origins should gain greater visibility next May.