Coffee's Selling Impetus

The GDP of the EU countries fell for the sixth consecutive quarter, with France falling into a recession for the second time in four years. Germany, the main power of the region, only grew 0.1 %, making many believe that the ECB soon will inject more liquidity in the system.

The global stock markets kept the bullish tendency, with the global index MSCI accumulating gains of 12.9 % in 2013. The US indexes reached new records in sequence, while the indicator Euro Stoxx 600 had its highest level in five years. The highlight was for the Japanese stocks, whose index has grown 46 % this year in Yen and 22.4 % in dollar.

In the opposite way, commodities have disappointed investors with a negative performance in the year to date, due to weaker demand and offers that still reflect the recent high cycle experienced recently. The funds interest has diminished for this asset class and the implicit volatilities indicate that nobody is expecting a change in this tendency for time being.

Coffee in NY had two closes above $1.45 but they were not sufficient to calm the selling impetus of the commercials, who took advantage of the liquidation of the short positions by the funds. Without the risk of a frost, which up to last Tuesday May 14th caused the covering by the funds of 31.698 lots (or 9 million 60 Kg bags), the market loses support in face of the emerging Brazilian Crop.

NY fell $10 per bag in five days, while London was sideways, making the arbitrage narrow.

The activity in the physical in general was good prior to the drop last Wednesday when the differentials were more attractive. In Brazil, the Riado coffees have a lower volume than the better quality ones, tightening the price difference between the two groups.

The CONAB has divulged their second estimate for the Brazilian crop for 2013/14. According to them, the Arabica production will be 36.4 million bags and the Conilon will be 12.2 million bags, against the 38.3 million and 12.5 million of the previous cycle. The total of 48.6 million bags is below the one the market believes in. The Reuters agency published a survey recently showing an average expectation of 51.75 million bags. The point with the greatest divergence is the production of Conilon, which some working with a 16.5 million bags figure.

The USDA initiated the publication of origins reports, indicating for Colombia a production in 2013/14 of 9 million bags. The consumption in that country is 1.2 million bags.

The American inventories in Ap/13 grew 90.759 bags, and the global one in consuming countries is estimated to be almost 23 million bags. This is before the entering of the Brazilian crop and the beginning of the summer season in the Northern hemisphere.

The ICE contract, having tested the “highs” of the interval between 130 and 145, now should test the “lows”, seeking to find support by the industry again.

Some lots of the new crop in Brazil, after hitting the market, are showing an excellent quality, which should help the exporters after a year that was more complicated than anticipated.

Have a good week.