Progreso Network

The coffee market starts to be technically oversold (?)

Cat and mouse
Comment, 23 de September, Jos Algra

The first signal of a weakening market last Friday materialised and the NY C Price plummeted this week. For the moment the support level at 180 is holding, although squeaking, and the market starts to be technically oversold, which could lead to a new price rise. Roasters are using the moments when the market gets close to 180 to fix contracts and the stops have now moved up to 182. A weaker dollar and rising commodity prices help. If the funds juice up will we see anther attempt to break through the barrier of 200 and get to 230 or higher? They will first have to get over the resistance at 187, watch that level.

The news of the dry period in Brazil being over is getting substituted by possible hail brought by the cold front that will arrive at the Coffee belt this weekend. Costa Rica reports problems with a fungus known as “ojo de gallo” (Mycena citricolor) due to excess of humidity, that may affect next harvest 2011/12. The harvest in Vietnam that will start with a delay next month, is affected by the rains; the previous forecast of an increase from 18 to 20 million bags can now be rolled back to 17.5-18 million. It made London move up above 1,700 per tonne and the arbitrage with NY is now down to around 100.

The differentials for Colombia Excelso lowering to +35/+36 over the last 2 weeks moved down the other Origins as well, though to a lesser extent. There is still a wide range between supply and demand.

The cat and mouse game continues regarding the differentials for mild Arabica, buyers don’t move much if one doesn’t lower the price, waiting for how the harvest in Colombia will develop.

A few tips: If you need contracts for you pre-finance, sell some organic if you can to start with, the higher differentials protect you more tan for conventional coffee. Another alternative is to sell some coffee at an outright price, calculating the range of the futures market (for NT now at 180-190) plus the differential that you would like; with that buyers who hedge their contracts can compensate a bit by playing with the futures market, so they can offer competitive prices to the roasters. But that’s an option only when you’re about to start procurement, otherwise the risk is high if you don’t hedge yourself. The option to sign a letter of intent, leaving the contracts with differentials pending until a specific date, has been received well by some buyers; it protects them against defaults when differentials rise steeply, just as it protects producers.

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