Coffee Options Plan May Not Be Effective

Last week we saw the ECB and the FOMC keeping their stance toward the continuation of the current easy money monetary policies.

Data for GDP growth and manufacturing indexes in the USA helped the stock market as well as the job creation which was less than expected for July but sill made investors believe in the FED continuation of its QE.

The main stock exchanges in Europe went up around 2 %, except the English one that increased near 1 % just as the US one.

Among commodities, the gains from oil and heating oil helped the SPGSCI to close higher, while corn and soybeans fell, pushing the DJAIG and the CRB down.

Coffee in NY reached its lowest level since July of 2009, helped by forecasts of less cold weather in Brazil, weakness of the Brazilian currency and selling by speculators.

London fell US$ 2.40 per bag, less than the US$ 5.29 of the Arabica, despite a greater volume of selling from origins.

The drop in the Arabica was halted last Friday with a fresh round of news about the possible announcements for an option plan in Brazil. The news say that the plan will give opportunity for the producers to sell their coffee to the government for a price of R$ 360.00 per bag, well above the minimum price of R$ 307.00.

Deal Flow
The flow of deals in the physical was better for the intermediates than for the producers for exporting, with differentials a little more discounted for Robusta and still tight for the Arabica.

The ICE suspended the certification of 124.600 bags of coffee warehoused in Antwerp due to a quality problem related to unsatisfactory conditions of the warehouse. The information is not so significant so as to move prices due to the volume and quantity of certified coffee that is still at 2.75 million bags, close to the same levels of March 2010.

The peak of the off-season in Vietnam gave room for the LIFFE contract to firm up until recently, not allowing the C to breach the 110 cents level, with the arbitrage showing a lot of support at 35 cents. With the proximity of the beginning of the harvest in Asia and the weakening of the Brazilian currency the support of prices may be fragile and the market is vulnerable to make new lows.

If there is no news from Brazil about a plan to dry up inventories, the funds, which technically have all the reason to continue selling, will find less roasters with buying orders, indicating that NY will test the lower side if the 110 cents to 130 cents range that I have been defending.

Vietnam
We should remember that the weight of the 2013/14 crop from Vietnam is heavy, specially with inventories in the hands of producers that should come to the market soon. In other words, and eventual plan in Brazil may not be as effective and in the end it may benefit the Asian producers than the South American ones.

Bank analysts are revising their bets as far as the value of the real currency, with some predicting that it will trade at 2.40 soon. The real devaluation will make less painful the performance of the prices in the futures markets, which will not see a significant recovery to help those who need to negotiate this crop and their inventories.