Financial volatility explains the coffee ups and downs on ICE US


Coffee rises again and moves away from the bottom and tests the graphic top at 190 cents on ICE US, which keeps the market above the five-year average. Even though the dollar does not buy what it did a few years ago, due to the acceleration of inflation in the USA, it remains at a high price level for coffee and near the reference of 200 cents, which deserves attention from sellers.

Currently, the market relies much more on financial volatility than on any fundamental support. The fluctuation of the dollar (especially against the real) and oil drives the rise and fall of coffee prices in NY, while funds begin to reduce their net long portfolio. At the end of the trading session on February 27, these agents held a net long portfolio in NY coffee futures of 51,700 contracts, compared to 55,863 contracts in the previous week. The dismantling of long positions continues, after the peak of over 60 thousand net contracts on February 13. The funds’ position continues to be a good thermometer for measuring changes in the coffee market in the short term.

However, there are inconsistencies in the long term, with the market still slightly inverted and with the most distant positions not proportionally following the gains in the spot reference (May/24). The behavior among maturities from Jul/24 in NY is more linear, and the price curve is more horizontal. This action would be an intermediate step in the process of regaining a positive spread between maturities. The arrival of Brazil’s 2024 crop and its effect on the market should serve as a trigger to accelerate the movement toward market normalization. In this sense, one should be careful not to hold on to the short term and be surprised by changes in longer positions.